<SUBMISSION>
<ACCESSION-NUMBER>0001019056-02-000682
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>5
<PERIOD>20020630
<FILING-DATE>20020930
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>JACLYN INC
<CIK>0000052969
<ASSIGNED-SIC>3100
<IRS-NUMBER>221432053
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0630
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<ACT>34
<FILE-NUMBER>001-05863
<FILM-NUMBER>02776094
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<BUSINESS-ADDRESS>
<STREET1>635 59TH STREET
<CITY>WEST NEW YORK
<STATE>NJ
<ZIP>07093
<PHONE>2018689400
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>5801 JEFFERSON STREET
<CITY>WEST NEW YORK
<STATE>NJ
<ZIP>07093
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<TYPE>10-K
<SEQUENCE>1
<FILENAME>jaclyn10_k.txt
<DESCRIPTION>FORM 10-K
<TEXT>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2002

                                       OR

[ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

For the transition period from ______________________to _______________________.

                           Commission File No. 1-5863

                                  JACLYN, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                 Delaware                                  22-1432053
------------------------------------------       -------------------------------
     (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                   Identification No.)

635 59th Street, West New York, New Jersey                   07093
------------------------------------------       -------------------------------
 (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code: (201) 868-9400

Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of each exchange
             Title of Class                       on which registered
             --------------                       -------------------

       Common Stock, $1 par value                American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                         Yes   X              No
                             -----               -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock (based on the closing price of
such stock on the American Stock Exchange) held by non-affiliates of the
Registrant at September 17, 2002 was approximately $5,123,000.

There were 2,561,391 shares of Common Stock outstanding at September 17, 2002.
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

PART III        Certain Portions of the Registrant's Proxy Statement for the
                Registrant's Annual Meeting of Stockholders scheduled to be held
                on December 3, 2002.
<PAGE>

                                TABLE OF CONTENTS
                                -----------------

             Item                                                           Page
             ----                                                           ----

PART I         1.     Business............................................    1

               2.     Properties..........................................    3

               3.     Legal Proceedings...................................    3

               4.     Submission of Matters to a
                      Vote of Security Holders............................    3

PART II        5.     Market for the Registrant's Common Equity
                      and Related Stockholder Matters.....................    5

               6.     Selected Financial Data.............................    7

               7.     Management's Discussion and Analysis of
                      Financial Condition and Results of
                      Operations..........................................    8

               7A.    Quantitative and Qualitative disclosures about
                      Market & Risk.......................................   13

               8.     Financial Statements and Supplementary
                      Data................................................   13

               9.     Changes in and Disagreements with
                      Accountants on Accounting and Financial
                      Disclosure..........................................   13

PART III       10.    Directors and Executive Officers
                      of the Registrant...................................   14

               11.    Executive Compensation..............................   14

               12.    Security Ownership of Certain
                      Beneficial Owners and Management....................   14

               13.    Certain Relationships and Related
                      Transactions........................................   14

               14.    Controls and Procedures.............................   14

PART IV        15.    Exhibits, Financial Statement
                      Schedules and Reports on Form 8-K...................   15

<PAGE>

                                     PART I

Item 1.   Business.
-------   ---------

          Jaclyn, Inc. (incorporated in the State of Delaware in 1968) and its
subsidiaries (collectively, "Jaclyn", "the Company", "we", "us", "our", or "the
Registrant") is primarily engaged in the design, manufacture, distribution and
sale of women's and children's apparel, and vinyl, leather and fabric handbags,
sport bags, backpacks, cosmetic bags, and related products (collectively,
"handbag products"). Our apparel lines are wide ranging and include women's
loungewear, sleepwear, dresses and sportswear, and lingerie, and with the recent
acquisition of Topsville, Inc. in January 2002 (discussed below) now also
includes infants' and children's clothing. The Company markets its handbag
products in a variety of popularly priced fashions and designs, with an emphasis
on casual, travel, and sport styles.

          General. Styling is an important factor in the merchandising of all of
our products. The Company's staff of full- time designers studies fashion trends
in order to anticipate consumer demand. The design staff works closely with the
purchasing department to determine concepts and fabrics for its apparel products
as well as the styling and material components for its handbag products. The
design staff also works with the production and engineering staffs to determine
the costs of production and the technical problems involved in producing a new
style. We change most of our designs from season to season.

          Finished merchandise is received at independently owned outside
warehouses located in New Jersey, Florida, California and Indiana, as well as
Company-owned and leased facilities. From these locations, products are shipped
under different selling names to customers all over the country. Products for
the apparel catalogue business are also shipped from outside contractor
locations directly to the customer. In addition, certain handbag products
manufactured in the Far East are shipped directly to customers from Hong Kong.
Our handbag products are marketed primarily through general merchandise, chain
and department stores. We market our apparel lines to department stores, retail
chain stores, as well as to major mail order catalog chains and other specialty
retailers.

          The Company markets its handbag products under trademarks and trade
names which it owns, including "Shane" and "Aetna," "Susan Gail," and "Robyn
Lyn". In addition, we are licensed to manufacture and market handbag products
under the names "Looney Tunes(TM)" under an agreement which expires March 30,
2004, "Crayola(TM)" under an agreement which expires December 31, 2002, and "Dr.
Seuss(TM)" under an agreement which expires December 15, 2002. The agreements
under which we marketed handbag products under the "ANNE KLEIN(TM)" and "ANNE
KLEIN 2(TM)" trademarks expired on June 30, 2002 and was not renewed. We also
are a party to a license agreement with Warner Bros. to manufacture denim
backpacks, handbags and accessories relating to the "Harry Potter(TM)" series of
books under an agreement which expires on December 31, 2003. The Company
manufactures and markets apparel under the names "Topsville", "I. Appel", "Smart
Time", and "Emerson Road", each of which the Company owns, and also manufactures
apparel items for sale as private-label merchandise. We consider all of our
licensed trademarks, trade names and other intellectual property rights to be of
significant value in the marketing of its products.


                                       1
<PAGE>

          The Company sells throughout the United States through its own
salesmen and through independent sales representatives.

          Sales of apparel items during each of the fiscal years ended June 30,
2002, 2001 and 2000 represented 60%, 54% and 42%, respectively, of consolidated
net sales. Sales of handbag products represented the remainder of our
consolidated net sales. Our sales are customarily offered on credit terms. We do
not have long-term contracts with any of our customers.

          In fiscal 2002, our imports of handbag products merchandise
manufactured in the Far East accounted for approximately 40% of consolidated net
sales, compared to approximately 46% of consolidated net sales in fiscal 2001.
Imports offer us the benefit of diversification of styling and the benefit of
cost savings related to such purchases. While our operations are subject to the
usual risks associated with purchases from foreign countries, our other foreign
and domestic manufacturing sources provide us with alternative sources and
facilities. Certain apparel orders which have shorter delivery dates are
manufactured or assembled in Central America, Mexico and domestically.

          Approximately 65% of the Company's consolidated net sales for fiscal
2002 were to general merchandise, chain, department stores and catalogue
retailers, with the balance consisting of sales to smaller specialty shops,
smaller retail stores and cosmetic firms. During the fiscal year ended June 30,
2002, Wal-Mart Stores, Inc., Estee Lauder, and Blair Corporation, accounted for
40% of our consolidated net sales (19%, 11% and 10% of consolidated net sales,
respectively). During the fiscal year ended June 30, 2001, four major customers
of the Company contributed approximately 55% of consolidated net sales as
follows: Blair Corporation, 17%; Estee Lauder, 15%; Coldwater Creek, 12% and
Wal-Mart Stores, Inc., 11%. The loss of any one of these customers would have a
material adverse effect on the Company's results of operations.

          Purchases of handbag and apparel raw materials, primarily fabrics,
vinyl and urethane plastics, leather, frames, ornaments, trim and other
materials, and certain of the Company's finished products, are made from a
variety of sources. In most cases, the Company assists its suppliers and
contractors in the design and style of the materials it purchases. Our largest
expenditures for raw materials are for fabrics, leather, vinyl and urethane
plastics, which we purchase from several suppliers, one of which provided about
7% of our raw material needs in fiscal 2002. While the Company has no long-term
supply contracts, the raw materials it uses are available from various sources
and it anticipates no difficulty in the future in obtaining the necessary raw
materials for its operations. The Company deals with a number of sources for its
purchases of finished handbags and related products, no one of which accounted
for more than approximately 17% of the Company's total cost of goods sold. The
Company has no long-term supply contracts with its Far East or European sources
of finished handbags and related products or apparel items and is subject to the
usual risks associated therewith.

          The Company offers Fall/Winter, Holiday and Spring/Summer product
lines and, in almost all instances, manufactures products to meet the specific
requirements of its customers. Our business has been somewhat seasonal in
nature. However, in the last few years, shipments have generally been influenced
by number of factors, including mid- year acquisitions which have added to net
sales in the second half of the Company's fiscal year, and general economic
conditions, which have, to some degree, impacted volume. Accordingly, we do not
believe that quarterly net sales are necessarily indicative of future trends.
Nevertheless, we anticipate that during fiscal 2003 we will have significantly
more sales volume in the first-half of the fiscal year than in the second half
of the fiscal year. Reference is made to Note L, "Unaudited Quarterly Financial
Data," of the Notes to Consolidated Financial Statements on page F-22 of this
Form 10-K for additional information about historical quarterly results.

          At September 18, 2002, the Company had unfilled orders of
approximately $52,548,000 compared to approximately $30,724,000 at September 14,
2001. The increase in our backlog of unfilled orders is primarily attributable
to the acquisition of Topsville, Inc., offset, in part, by a decrease in backlog
relating to our Anne Klein license, which was not renewed. In the ordinary
course of business, the dollar amount of unfilled orders at a particular point
in time is affected by factors, including scheduling of the manufacture and
shipping of goods (which, in turn, may be dependent on the requirements of
customers). Accordingly, a comparison of backlog from period to period is not
necessarily meaningful and may not be indicative of future sales patterns or
shipments. The Company does, however, anticipate that the substantial increase
in unfilled orders at September 18, 2002 compared with a comparable date in
fiscal 2001, will favorably impact revenues and earnings during fiscal 2003.

          The Company employed 191 persons as of June 30, 2002, of whom 125 were
on a salaried basis and the balance on an hourly basis. At June 30, 2002, 18 of
the Company's employees were members of the Four Joint Boards of New York, New
Jersey, Pennsylvania and New England, affiliated with the International Leather
Goods, Plastics and Novelty Workers Union, AFL-CIO. The Company considers its
relations with its employees to be satisfactory.


                                       2
<PAGE>

          The Company competes with numerous domestic and foreign manufacturers
of handbags and apparel, very few of which are believed to each account for as
much as 1% of industry sales. We believe our sales of apparel items and handbag
products are not significant in light of total apparel industry sales. Our
business is dependent, among other things, on our ability to anticipate and
respond to changing consumer preferences, to remain competitive in price, style
and quality, and to meet our customers' various production and delivery
requirements. While some of the Company's competitors may be larger or may have
greater resources than ours, we believe that our size and financial position
will allow us to continue to respond to changes in consumer demand and remain
competitive.

          On January 10, 2002, the Company acquired 100% of the stock of
Topsville, Inc., a New York City- based manufacturer and distributor of private
label infants' and children's clothing. The aggregate purchase price for the
acquisition was $3,245,702, of which $1,745,702 was paid at the closing of the
transaction and the remainder of which is being paid over a fifteen-month period
from closing from working capital and/or our bank line of credit.

          On January 19, 2001, the Company acquired the business and certain
assets of I. Appel Corporation, which manufactures and distributes robes,
dusters and loungewear for distribution to department stores. The aggregate
purchase price for the acquisition was approximately $700,000 for goodwill,
certain tangible assets and included $100,000 for acquisition costs.
Approximately $350,000 was paid at closing with the remainder payable in
quarterly installments through October 2002. The remaining installments are
being paid from working capital and/or our bank line of credit.

          Subsequent to June 30, 2002, the Company consummated a mortgage loan
with a bank lender in the amount of $3,250,000. The financing is secured by a
mortgage of the Company's West New York, New Jersey headquarters and warehouse
facility (see the information below under the caption "Item 2. Properties"
below). The loan bears interest at a fixed rate of 7% per annum. The financing
has a fifteen-year term, but is callable by the bank lender at any time after
September 1, 2007 and may be prepaid by the Company, along with a prepayment
fee, from time to time during the term of the financing. The proceeds of the
financing are being used for general working capital purposes.

Item 2.   Properties.
-------   -----------

          The Company's executive offices and one of its warehouse facilities,
containing 140,000 square feet, is located in West New York, New Jersey. The
Company currently leases approximately 70,000 square feet of the West New York
facilities to outside parties. The Company also leases four showroom and office
facilities in New York City totaling approximately 32,000 square feet, as well
as a warehouse in Medley, Florida for its newly acquired Topsville operations.
Reference is made to Note D, "Commitments and Contingencies," of the Notes to
Consolidated Financial Statements on page F-12 of this Form 10-K for additional
information about the Company's commitments under the terms of non-cancelable
leases.

Item 3.   Legal Proceedings.
-------   ------------------

          (a) The Company is not a party to, nor is any of its property the
subject of, any material pending legal proceeding.

          (b) No material pending legal proceeding was terminated during the
three-months ended June 30, 2002.

Item 4.   Submission of Matters to a Vote of Security Holders.
-------   ----------------------------------------------------

          The Company did not submit any matters to a vote of its security
holders, through the solicitation of proxies or otherwise, during the
three-months ended June 30, 2002.

Executive Officers of the Registrant

          The executive officers of the Company are set forth below. All
executive officers are elected at the annual meeting or at interim meetings of
the Board of Directors and hold their offices, at the pleasure of the Board of
Directors, until the next annual meeting of the Board and the election and
qualification of their respective successors. No arrangement or understanding
exists between any executive officer and any other person pursuant to which he
or she was elected as an executive officer.


                                       3
<PAGE>

Name                              Age    Position and Period Served
----                              ---    --------------------------

Abe Ginsburg...................    85    Chairman of the Executive Committee
                                           since November 29, 1988

Allan Ginsburg.................    60    Chairman of the Board since
                                           November 29, 1988

Robert Chestnov................    54    President and Chief Executive Officer
                                           since November 29, 1988

Howard Ginsburg................    60    Vice Chairman of the Board since
                                           November 29, 1988 and President
                                           of the Company's Shane Handbag
                                           Division for more than the past
                                           five years

Bonnie Sue Levy................    57    Vice President of the Company and
                                           President of the Company's Aetna
                                           Kiddie Bag Division for more than the
                                           past five years


Anthony Christon...............    57    Chief Financial Officer for more than
                                           the past five years


Family Relationships

         Abe Ginsburg, Chairman of the Executive Committee and a director of the
Company, is the father of Howard Ginsburg, Vice Chairman of the Board and a
director of the Company. Allan Ginsburg, Chairman of the Board and a director of
the Company, is the brother of Bonnie Sue Levy, Vice President of the Company,
is a nephew of Abe Ginsburg and is a first cousin of Howard Ginsburg. Robert
Chestnov, President, Chief Executive Officer and a director of the Company, and
Richard Chestnov, a director of the Company, are brothers.


                                       4
<PAGE>

                                     PART II
                                     -------

Item 5.   Market for the Registrant's Common Equity and Related Stockholder
-------   Matters.
          -----------------------------------------------------------------

          The Company's Common Stock, $1.00 par value per share, is traded on
the American Stock Exchange (Symbol: "JLN"). The following table sets forth the
high and low closing sales prices for the Company's Common Stock, as reported by
the American Stock Exchange, for each quarterly period during the Company's
fiscal years ended June 30, 2002 and June 30, 2001.

             Fiscal Year Ended June 30, 2002              High            Low
             -------------------------------              ----            ---

             First Quarter                                $2.75          $1.90
             Second Quarter                                2.65           1.73
             Third Quarter                                 2.20           1.82
             Fourth Quarter                                2.10           1.75

             Fiscal Year Ended June 30, 2001              High            Low
             -------------------------------              ----            ---

             First Quarter                                $4.25          $2.38
             Second Quarter                                3.19           2.50
             Third Quarter                                 3.90           2.60
             Fourth Quarter                                3.00           2.35


          The Company did not pay cash dividends during fiscal 2002 or 2001 and
does not anticipate the payment of cash dividends in the foreseeable future.

          At June 30, 2002, there were approximately 617 holders of record of
the Company's Common Stock.

         Equity Compensation Plan Information

         The following sets forth certain information as of June 30, 2002
concerning the Company's equity compensation plans:


                                       5
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------

Plan Category              Number of securities               Weighted-average          Number of securities
                           to be issued upon exercise         exercise price of         remaining available
                           of outstanding options,            outstanding options,      for future issuance
                           warrants and rights                warrants and rights       under equity
                                                                                        compensation plans
                                                                                        (excluding securities
                                                                                        reflected in column

                                                                                        (a))

                           (a)                                (b)                       (c)
--------------------------------------------------------------------------------------------------------------
<S>                        <C>                                <C>                       <C>

Equity compensation        412,161                            $3.53                            219,500
plans approved by
security holders

--------------------------------------------------------------------------------------------------------------

Equity compensation        140,000(1)(2)                      $2.15                               -
plans not approved
by security holders

--------------------------------------------------------------------------------------------------------------

Total                      552,161                                                             219,500

--------------------------------------------------------------------------------------------------------------

<FN>
(1)      Includes options to purchase an aggregate of 20,000 shares of Common
         Stock issuable upon the exercise of non-qualified stock options granted
         to two non-employee sales representatives. Each of the stock options
         provides for the grant of shares of Common Stock at exercise prices per
         share equal to the fair market value per share of Common Stock on the
         date of grant. Pursuant to the terms of each option, the optionee may
         exercise the option at any time and from time to time for a period of
         five years from the date of grant, subject to earlier termination under
         certain circumstances.

(2)      Includes an option to purchase an aggregate of 120,000 shares of Common
         Stock issuable to a consultant of the Company. The option provides for
         the grant of 40,000 shares of Common Stock during the first year after
         grant and as to an additional 40,000 shares of Common Stock, on a
         cumulative basis, on the first and second anniversaries of the date of
         grant (each 40,000 share installment, a "Tranche"), in each case at an
         exercise price per share equal to the fair market value per share of
         Common Stock on the original date of grant. The optionee may exercise a
         Tranche only during the five-year period after such Tranche becomes
         exercisable, as described above, subject to earlier termination under
         certain circumstances.
</FN>
</TABLE>

                                       6
<PAGE>

Item 6.   Selected Financial Data.
-------   ------------------------

<TABLE>
<CAPTION>
Years ended June 30,                         2002              2001              2000              1999              1998
                                         ------------      ------------      ------------      ------------      ------------
<S>                                      <C>               <C>               <C>               <C>               <C>
Net Sales                                $ 81,031,000      $ 79,570,000      $ 72,078,000      $ 58,799,000      $ 68,281,000

Cost of Goods Sold - see Note 1            62,083,000        61,575,000        54,183,000        44,873,000        51,401,000
                                         ------------      ------------      ------------      ------------      ------------

Gross Profit                               18,948,000        17,995,000        17,895,000        13,926,000        16,880,000

Shipping, selling and administrative
expenses - see Note 1                      19,823,000        17,748,000        17,572,000        16,106,000        16,888,000

Writeoff of goodwill - see Note 2                   -                 -                 -         1,124,000                 -

Interest expense                              293,000           234,000           100,000             4,000           182,000

Interest income                                (3,000)         (109,000)         (136,000)         (207,000)         (294,000)

Other income                                  (11,000)          (34,000)          (47,000)         (324,000)                -

Provision (benefit) for income taxes         (415,000)           56,000           146,000          (998,000)           37,000
                                         ------------      ------------      ------------      ------------      ------------

NET EARNINGS (LOSS)- see Note 1          $   (739,000)     $    100,000      $    260,000      $ (1,779,000)     $     67,000
                                         ------------      ------------      ------------      ------------      ------------

Weighted average shares outstanding         2,561,000         2,644,000         2,710,000         2,711,000         2,707,000

   Net Earnings per common share-
    Basic and Diluted                    $       (.29)     $        .04      $        .10      $       (.66)     $        .02
                                         ------------      ------------      ------------      ------------      ------------

TOTAL ASSETS                             $ 35,418,000      $ 25,031,000      $ 26,476,000      $ 25,595,000      $ 24,572,000

Long term debt:

    Guaranteed bank loan - ESOP                     -                 -                 -                 -      $     56,000

    Other non-current liabilities        $     61,000      $    100,000                 -                 -                 -

Stockholders' equity                     $ 15,824,000      $ 16,563,000      $ 16,857,000      $ 16,659,000      $ 18,394,000
                                         ------------      ------------      ------------      ------------      ------------

Stockholders' equity per share           $       6.18      $       6.26      $       6.22      $       6.15      $       6.80
                                         ------------      ------------      ------------      ------------      ------------

<FN>
Note 1: Fiscal 2002 includes a pre-tax charge totaling $1,289,000, $389,000
included in Cost of Goods Sold and $900,000 included in Shipping, Selling and
Administrative Expenses, ($825,000 after tax), for the amortization of open
order backlog and an adjustment to fair value in connection with the Topsville
acquisition.

Note 2: Fiscal 1999 includes a goodwill writeoff totaling $1,124,000 resulting
from closing one of three unprofitable divisions.
</FN>
</TABLE>

                                       7
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition and
-------   Results of Operations.
          ----------------------

          The preparation of financial statements in conformity with generally
accepted accounting principles requires the appropriate application of
accounting policies, many of which require the Company to make estimates and
assumptions about future events and their impact on amounts reported in the
financial statements and related notes. Since future events and their impact
cannot be determined with certainty, the actual results will inevitably differ
from its estimates. Such differences could be material to the consolidated
financial statements.

          The Company believes that application of accounting policies, and the
estimates inherently required by the policies, are reasonable. These accounting
policies and estimates are periodically reevaluated, and adjustments are made
when facts and circumstances dictate a change. Historically, the Company has
found the application of accounting policies to be appropriate, and actual
results have not differed materially from those determined using necessary
estimates.

          The Company's accounting policies are more fully described in Note A
to the consolidated financial statements. The Company has identified certain
critical accounting policies that are described below.

          Merchandise inventory. The Company's merchandise inventory is carried
at the lower of cost on a first-in, first-out basis, or market. The Company
writes down its inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required.

          Allowance for doubtful accounts. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of its customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

          Market development accruals. The Company estimates reductions to
revenue for customer programs and incentive offerings including special pricing
agreements, price protection, promotions and other volume-based incentives. If
market conditions were to decline, the Company may take actions to increase
customer incentive offerings possibly resulting in an incremental reduction of
revenue at the time the incentive is offered.

          Long-lived assets, excluding goodwill. In evaluating the fair value
and future benefits of long-lived assets, the Company performs an analysis of
the anticipated undiscounted future net cash flows of the related long-lived
assets. If the carrying value of the related asset exceeds the undiscounted cash
flows, the Company reduces the carrying value to its fair value.

          Goodwill. Goodwill is continually reviewed for impairment. The
carrying value of goodwill would be impaired if the estimate of future
discounted cash flows is less than carrying value. If goodwill is impaired, the
loss is measured using estimated fair value. To the extent these future
projections or our strategies change, the conclusion regarding impairment may
differ from the current estimates.

          The Company believes at this time that the long-lived asset's carrying
values and useful lives continues to be appropriate. Future adverse changes in
market conditions or poor operating results of underlying investments could
result in an inability to recover the carrying value of the investments that may
not be reflected in an investment's current carrying value, thereby possibly
requiring an impairment charge in the future.

          Deferred taxes. Should the Company determine that it would not be able
to realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.


                                       8
<PAGE>

Liquidity and Capital Resources

          The net increase in cash and cash equivalents for the fiscal year
ended June 30, 2002, of $29,000 was the result of of funds used in operating
activities totaling $3,569,000 and funds used in investing activities of
$2,242,000, offset by funds provided by financing activities totaling
$5,840,000. Funds used in operating activities were primarily due to an increase
in accounts payable and other current liabilities of $2,853,000 reflecting, for
the most part, payments of inventory purchases for the apparel businesses
(including the acquisition of Topsville, Inc, a manufacturer of infants' and
children's clothing), and a $5,837,000 increase in accounts receivable
(attributable to a higher level of shipping in the fourth quarter of fiscal 2002
compared to the comparable quarter in fiscal 2001). In addition, the $833,000
increase in prepaid expenses was mostly attributable to required funding of the
Company's pension plan. Cash used in investing activities totaling $2,242,000,
was mostly due to the acquisition of Topsville, Inc. Funds provided by financing
activities were derived primarily from an increase in the amount of $6,540,000
in notes payable under the existing credit facility, offset by installment
payments for the Topsville and the I. Appel acquisitions.

          During fiscal 2002, the Company amended its bank line of credit to
accommodate the acquisition of Topsville, Inc. The credit facility, which
extends through December 1, 2002, provides the Company with short-term loans,
letters of credit and bankers acceptances amounting to $24,000,000 with
inventory and accounts receivable pledged to the bank as collateral. On June 30,
2002, the Company could borrow up to $13,000,000 in short-term loans. Subsequent
to June 30, 2002, the Company amended its bank agreement to borrow up to
$17,000,000 in short-term loans. In addition, the Company entered into a
$3,250,000, 7% mortgage loan agreement with another bank for general working
capital needs. These transactions were done primarily for the purpose of
financing the additional sales volume relative to the Topsville acquisition. The
Company is required to maintain a minimum ratio of cash and accounts receivable
to bank borrowing of 1.25 to 1, as well as a minimum tangible net worth of
$11,500,000. The Company believes that funds provided by operations, existing
working capital, the Company's amended bank line of credit (which we expect will
be renewed) and mortgage financing of its West New York, New Jersey corporate
headquarters facility, will be sufficient to meet foreseeable working capital
needs. Reference is made to Note E "Credit Facilities," of the Notes to
Consolidated Financial Statements on page F-10 of this Form 10-K for additional
information about the Company's credit lines.

          There were no material commitments for capital expenditures at June
30, 2002.

          The net decrease in cash and cash equivalents for the fiscal year
ended June 30, 2001, of $249,000 was the result of an excess of funds used in
operating activities totaling $1,934,000, offset by funds provided by financing
activities totaling $846,000 and funds provided by investing activities of
$839,000. Funds used in operating activities were primarily due to a decrease in
accounts payable and other current liabilities of $2,115,000 reflecting, for the
most part, payments of inventory purchases for the apparel businesses, as well
as an increase in inventory of $865,000 (principally reflecting finished goods
inventory relating to the recently acquired robe and duster business discussed
below), offset by a $746,000 decrease in accounts receivable (attributable to a
lower level of shipping in the fourth quarter of fiscal 2001 compared to the
comparable quarter in fiscal 2000). Cash provided by investing activities
totaling $839,000 resulted mainly from proceeds from the sales of securities
available for sale totaling $2,443,000, offset by purchases during the fiscal
year of securities available for sale of $816,000. The Company sold its
securities available for sale during fiscal 2001 in order to better utilize
these investment funds for working capital needs. The proceeds from the sales of
securities available for sale were further offset by the acquisition of certain
assets of the I. Appel Corporation (a company engaged in the manufacture and
distribution and sale of women's robes, dusters and other apparel) totaling
$400,000. Funds provided by financing activities were derived primarily from an
increase in notes payable to the Company's bank under the existing credit
facility of $1,285,000 offset by repurchases of the Company's stock totaling
$389,000.

          As of June 30, 2002, 2001 and 2000, working capital was $9,747,000,
$12,477,000, and $14,597,000, respectively. The ratio of current assets to
current liabilities for those same periods was 1.5 to 1, 2.6 to 1, and 2.7 to 1,
respectively. The decrease in the current ratio of current assets to current
liabilities in fiscal 2002 compared to fiscal 2001 is primarily attributable to
funds used in connection with the Topsville acquisition and additional borrowing
required to finance the acquisition. The Company's cash, cash equivalents and
marketable securities totaled $95,000, $66,000, and $1,947,000, at June 30,
2002, 2001 and 2000, respectively.


                                       9
<PAGE>

Contractual Obligations and Commercial Commitments

To facilitate an understanding of our contractual obligations and commercial
commitments, the following data is provided (in thousands):

<TABLE>
<CAPTION>
                                                         Payments Due by Period
                                                         ----------------------

                                                    Within                                     After
Contractual Obligations                Total        1 Year       2-3 Years     4-5 Years      5 Years
                                      -------       -------      ---------     ---------      -------
<S>                                   <C>           <C>           <C>           <C>           <C>
Notes Payable                         $ 9,095       $ 9,095       $     -       $     -       $     -
Acquisition Notes                       1,050         1,050             -             -             -
Royalties                                 362           115           247             -             -
Operating Leases                        2,857           683         1,206           549           419
                                      -------       -------       -------       -------       -------
Total Contractual Obligations         $13,364       $10,943       $ 1,453       $   549       $   419
                                      =======       =======       =======       =======       =======

<CAPTION>
                                                Amount of Commitment Expiration Per Period
                                                ------------------------------------------

                                       Total
                                      Amounts       Within                                     After
Other Commercial Commitments         Committed      1 Year       2-3 Years     4-5 Years      5 Years
----------------------------         ---------      -------      ---------     ---------      -------
<S>                                   <C>           <C>           <C>           <C>           <C>
Letters of Credit                     $ 8,907       $ 8,907       $     -       $     -       $     -
                                      -------       -------       -------       -------       -------
Total Commercial Commitments          $ 8,907       $ 8,908       $     -       $     -       $     -
                                      =======       =======       =======       =======       =======
</TABLE>


Results of Operations

2002 Compared to 2001

          Net sales for fiscal 2002 totaled $81,039,000, an increase of
$1,461,000, or 1.8%, compared to the prior fiscal year. Sales by category were
as follows:

          Net sales for the Apparel category in fiscal 2002 were $49,003,000, an
increase of $6,655,000, or 15.7%, compared to $42,348,000 in 2001. The sales
increase for this category was primarily due to additional net sales from the
acquisition of Topsville, Inc. coupled with increases in revenue from existing
customers for our women's sleepwear business, offset by much lower volume with
our catalogue customers.

          Net sales for the Handbag category in fiscal 2002 were $32,028,000, or
14% lower than the prior fiscal year's total of $37,222,000. The sales decrease
was attributable to lower demand for both the Company's children's and premium
handbag divisions due to the soft economic climate during fiscal 2002.

          Gross margin increased to 23.4% in 2002 from 22.7% in 2001. The gross
margin increase in 2002 was due to higher margins in the Apparel category,
reflecting better results for our Women's sleepwear business. Gross margins by
category were as follows:

          Gross margin for the Apparel category in 2002 increased to 21.9% in
2002 from 19.0% in 2001. The increase was attributable to higher margins in the
Company's women's sleepwear business as well as better margins from the
Topsville acquisition which offset otherwise lower catalogue margins.

          Overall gross margin for the Handbags category in 2002 remained at
26.9% in 2002 compared to 2001. While the overall percentage was unchanged, we
experienced lower margins in our children's handbag and better handbag business
offset by better margins in our premium business.

          Shipping, selling and administrative expenses increased to 24.5%, up
2.2% from fiscal 2001, due to the addition of Topsville's related shipping,
selling and administrative costs and includes a $900,000 non-cash


                                       10
<PAGE>

charge related to amortization of an open order backlog in connection with the
Topsville acquisition, in accordance with FAS 141. Without the $900,000 charge,
shipping, selling and administrative expenses increased to 23.4% of net sales,
or a 1.1% increase from fiscal 2001. This increase reflects the increased
shipping, selling and administrative costs associated with the Topsville
operations.

          Interest expense increased to $293,000 from $234,000 last fiscal year,
primarily the result of much higher average borrowing needed to finance the
acquisition of Topsville, Inc. and the related increased volume of business in
fiscal 2002 compared to fiscal 2001.

          Interest income decreased by $106,000 due to the elimination of
securities available for sale which were sold during fiscal 2001 in order to
utilize such investment funds for current working capital purposes.

          Other income was lower by $23,000 for the fiscal year 2002 compared to
the prior fiscal year.

          The loss before income taxes for the fiscal year ended June 30, 2002
compared to earnings in the prior year was primarily due to accounting for the
acquisition of Topsville, Inc. Excluding an after-tax, non-cash charge of
$825,000, the company had earnings of $86,000 compared to $100,000 in the prior
fiscal year.

2001 Compared to 2000

          Net sales for fiscal 2001 totaled $79,570,000, up $7,492,000 or 10.4%
from the prior fiscal year. Sales by category were as follows:

          Net sales for the Apparel category in fiscal 2001 were $42,348,000, an
increase of $12,321,000, or 41% compared to $30,027,000 in 2000. The sales
increase for this category was primarily due to increases in revenue from
existing customers, mostly during the first half of the Company's fiscal year,
as well as revenues resulting from the acquisition of certain assets of the I.
Appel Corporation, discussed above.

          Net sales for the Handbags category in fiscal 2001 were $37,222,000,
or 11.5% lower than the prior fiscal year's total of $42,051,000. The sales
decrease was mostly attributable to the Company's children's and better handbag
divisions due to the soft economic climate during the third and fourth quarters
of fiscal 2001.

          Gross margin decreased to 22.6% in 2001 from 24.8% in 2000. The gross
margin decrease in 2001 was due to lower margins in both the Apparel and
Handbags categories, reflecting more recently, the difficult retail and economic
environment. Gross margins by category were as follows:

          Gross margin for the Apparel category in 2001 decreased to 19.0% in
2001 from 19.9% in 2000. The decrease was attributable to lower margins in the
Company's women's apparel business due to an inability to pass along cost
increases in a difficult retail market.

          Gross margin for the Handbags category in 2001 decreased to 26.9% in
2001 from 28.4% in 2000. This decrease was mainly due to lower margins in our
premium and better handbag businesses in the current period as compared to the
prior fiscal year because of a greater level of off-price sales in fiscal 2001
compared to the prior fiscal year.

          Shipping, selling and administrative expenses increased slightly due
to volume related expenses in fiscal 2001 compared to the prior fiscal year.
However, as a percentage of net sales, shipping, selling and administrative
expenses declined to 22.3% from 24.4% in fiscal 2000, due to the relatively
lower level of fixed expenses compared to higher net sales.

          Interest expense increased to $234,000 from $100,000 last fiscal year,
primarily the result of higher average borrowing needed to finance the increased
volume of business in the current fiscal year at a higher average interest rate
compared to fiscal 2000.


                                       11
<PAGE>

          Interest income decreased by $27,000 due to a lower level of
securities available for sale which were sold during fiscal 2001 in order to
utilize such investment funds for current working capital purposes.

          Other income was lower by $13,000 for the fiscal year 2001 compared to
the prior fiscal year.

          The decrease in earnings before income taxes for the fiscal year ended
June 30, 2001 compared to the prior year was primarily due to a 2.2% decrease in
gross profit, as well as higher interest expense and lower interest income, as
discussed above.


New Accounting Pronouncements

Recently Issued Accounting Standards

          In June 2001, the Financial Accounting Standards Board ("FASB") issued
two new pronouncements: Statement of Financial Accounting Standards ("SFAS") No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets.

          SFAS No. 141 addresses financial accounting and reporting for business
combinations and supersedes APB No. 16 "Business Combinations" and FASB
Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises". All business combinations that fall within the scope of this
Statement are to be accounted for using one method, the purchase method. SFAS
141 is effective as follows: a) use of the pooling-of-interest method is
prohibited for business combinations initiated after June 30, 2001 (that is, the
date of the acquisition is July 2001 or later) and b) the provisions of SFAS 141
also apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001. See Note I to Notes to Consolidated
Financial Statements for the impact on the Consolidated Financial Statements.

          SFAS No.142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB No.17, "Intangible
Assets". On July 1, 2001, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." As a result, we no longer amortize goodwill, but
periodically we evaluate goodwill for recoverability. The Company also evaluates
goodwill whenever events and changes in circumstance suggest that the carrying
amount may not be recoverable from its estimated future cash flows. See Note I
to Notes to Consolidated Financial Statements for the impact on the Consolidated
Financial Statements.

Accounting Standards Not Yet Adopted

          In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred. The provisions of SFAS No. 143 are effective for fiscal years
beginning after June 15, 2002. The Company will adopt SFAS No. 143 beginning in
the first fiscal quarter of fiscal 2003. The Company believes that the adoption
of SFAS No. 143 will not have a material impact on its results of operations and
financial position.

          In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The primary objectives of SFAS No. 144


                                       12
<PAGE>

were to develop one accounting model based on the framework established in SFAS
No. 121, and to address significant implementation issues. The provisions of
SFAS No. 144 are effective for fiscal years beginning after December 15, 2001.
The Company will adopt SFAS No. 144 in the first fiscal quarter of fiscal 2003.
The Company believes that the adoption of SFAS No. 144 will not have a material
impact on our results of operations and financial position.

          In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). SFAS 145 rescinds the provisions of SFAS No. 4 that
requires companies to classify certain gains and losses from debt
extinguishments as extraordinary items, eliminates the provisions of SFAS No. 44
regarding the Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13
to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of SFAS No. 145 related to the classification of
debt extinguishment is effective for fiscal years beginning after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material impact on the
Company's results of operations and financial position.

          In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact of SFAS No. 146 on its consolidated financial statements.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.
--------  -----------------------------------------------------------

          The Company, in the normal course of doing business, is exposed to
interest rate change market risk. Since our borrowing patterns are cyclical, the
Company is not dependent on borrowing throughout the year. Never-the-less, a
sudden increase in interest rates (which under the line of credit is at the
prime rate or lower) may, especially during peak borrowing, potentially have a
significant negative impact on the Company's results of operations. We have not
used, and currently do not anticipate using, any derivative financial
instruments. In addition, we have not been materially impacted by fluctuations
in foreign currency exchange rates as substantially all of our business is
transacted in, and is expected to continue to be transacted in, U.S.
dollar-based currencies.

Item 8.   Financial Statements and Supplementary Data.
-------   --------------------------------------------

          Financial Statements
          --------------------

          The report dated September 24, 2002 of Deloitte & Touche LLP,
independent auditors, the consolidated balance sheets of Jaclyn, Inc. and
subsidiaries as of June 30, 2002 and 2001 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three fiscal years ended June 30, 2002 and Notes to Consolidated Financial
Statements appear on pages F-2 through F-23 of this Form 10-K.

          Supplementary Data
          ------------------

          Selected unaudited quarterly financial data for the fiscal years ended
June 30, 2002, June 30, 2001 and June 30, 2000 is set forth at Note M,
"Unaudited Quarterly Financial Data" on page F-22 of this Form 10-K.

Item 9.   Changes in and Disagreements with Accountants on Accounting and
-------   Financial Disclosure.
          ---------------------------------------------------------------

          Not Applicable.


                                       13
<PAGE>

                                    PART III
                                    --------

Item 10.  Directors and Executive Officers of the Company.
--------  ------------------------------------------------

          The information required by this item (other than certain information
as to the executive officers of the Company, which information is set forth in
Part I of this Form 10-K under the caption "Executive Officers of the
Registrant") is incorporated herein by reference to the Company's definitive
Proxy Statement relating to the Company's 2002 Annual Meeting of Stockholders to
be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended.

Item 11.  Executive Compensation.
--------  -----------------------

          The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Company's
2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.
--------  ---------------------------------------------------------------

          The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Company's
2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.

Item 13.  Certain Relationships and Related Transactions.
--------  -----------------------------------------------

          The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Company's
2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.

Item 14.  Controls and Procedures.
--------  ------------------------

          (a) Not applicable.

          (b) Under transition provisions contained in the final rules adopted
by the Securities and Exchange Commission relating to, among other things, the
evaluation of the Company's disclosure controls and procedures, the Company is
not required to perform the evaluation of its disclosure controls and procedures
for purposes of this Form 10-K. Accordingly, the required disclosure as to
whether or not there have been any significant changes in the Company's internal
controls, or in other factors that could affect those controls, subsequent to
such an evaluation is not applicable to the Company.


                                       14
<PAGE>

                                     PART IV
                                     -------

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.
--------  ----------------------------------------------------------------

          (a) The following financial statements and financial statement
schedules are filed as part of this report:

          Financial Statements:
          ---------------------

          Independent Auditors' Report

          Consolidated Balance Sheets -- June 30, 2002 and 2001

          Consolidated Statements of Operations -- years ended June 30, 2002,
          2001 and 2000

          Consolidated Statements of Stockholders' Equity -- years ended June
          30, 2002, 2001 and 2000

          Consolidated Statements of Cash Flows -- years ended June 30, 2002,
          2001 and 2000

          Notes to Consolidated Financial Statements

          Financial Statement Schedules:
          ------------------------------

          Schedule II - Valuation and Qualifying Accounts

          All other schedules are omitted because they are either inapplicable,
not required, or because the required information is included in the
consolidated financial statements or notes thereto.

                                    Exhibits:
                                    ---------

Exhibit No.       Description
-----------       -----------

3(a)              Certificate of Incorporation of the Registrant (incorporated
                  herein by reference to Exhibit 3(a) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1994).

3(b)              By-Laws of the Registrant (incorporated herein by reference to
                  Exhibit 3(b) to the Registrant's Annual Report on Form 10-K,
                  File No. 1-5863, for the fiscal year ended June 30, 1991).

4(a)              Promissory Note of the Registrant dated August 14, 2002
                  payable to the order of Hudson United Bank ("HUB") in the
                  principal amount of $3,250,000.

4(b)              Mortgage, Security Agreement and Financing Statement dated
                  August 14, 2002 between the Registrant and HUB.

10(a)             Incentive Stock Option Plan of the Registrant (incorporated
                  herein by reference to Exhibit 10(f) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1988).

10(b)             1984 Employee Stock Option Plan of the Registrant
                  (incorporated herein by reference to Exhibit 10(f) to the
                  Registrant's Annual Report on Form 10-K, File No. 1- 5863, for
                  the fiscal year ended June 30, 1989).*


                                       15
<PAGE>

10(c)             1990 Stock Option Plan of the Registrant, as amended
                  (incorporated herein by reference to Exhibit 10(g) to the
                  Registrant's Annual Report on Form 10-K, File No. 1-5863, for
                  the fiscal year ended June 30, 1991).*

10(d)             Amended and Restated Stockholders' Agreement dated July 30,
                  1996 among the Registrant and the persons listed on Schedule A
                  thereto (incorporated herein by reference to Exhibit 10(j) to
                  the Registrant's Annual Report on Form 10K, file number
                  1-5863, for the fiscal year ended June 30, 1996).

10(e)             Key Executive Disability Plan of the Registrant (incorporated
                  herein by reference to Exhibit 10(m) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1988).*

10(f)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(i) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(g)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(j) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1999).

10(h)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(j) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(i)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Robert Chestnov (incorporated herein by
                  reference to Exhibit 10(m) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(j)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Howard Ginsburg (incorporated herein by
                  reference to Exhibit 10(n) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(k)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Allan Ginsburg (incorporated herein by
                  reference to Exhibit 10(o) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(l)             1996 Non-Employee Director Stock Option Plan (incorporated by
                  reference to Exhibit 10(o) to the Registrant's Annual Report
                  on Form 10-K, File No. 1- 5863, for the fiscal year ended June
                  30, 1998).*

10(m)             Non-Qualified Stock Option Contract dated December 3, 1996
                  between the Registrant and Martin Brody (incorporated by
                  reference to Exhibit 10(p) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1997).

10(n)             Non-Qualified Stock Option Contract dated December 3, 1996
                  between the Registrant and Richard Chestnov (incorporated by
                  reference to Exhibit 10(q) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1997).


                                       16
<PAGE>

10(o)             Non-Qualified Stock Option Contract dated August 19, 1997
                  between the Registrant and Al Safer (incorporated by reference
                  to Exhibit 10(r) to the Registrant's Annual Report on Form
                  10-K, File No. 1-5863, for the fiscal year ended June 30,
                  1997).

10(p)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Martin Brody (incorporated by
                  reference to Exhibit 10(s) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(q)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Richard Chestnov (incorporated by
                  reference to Exhibit 10(t) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(r)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Albert Safer (incorporated by
                  reference to Exhibit 10(u) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(s)             Letter Agreement dated as of December 29, 1997 between the
                  Registrant and Robert Chestnov (incorporated herein by
                  reference to Exhibit 2.1 to the Registrant's Current Report on
                  Form 8-K, file No. 1-5863, for the fiscal year ended June 30,
                  1998).*

10(t)             Purchase and Sale Agreement dated January 11, 1999 between
                  Banner Industries of New York, Inc. and Jaclyn,
                  Inc.(incorporated herein by reference to Exhibit 2.1 to the
                  Registrant's Current Report on Form 8-K, file No. 1-5863,
                  dated January 26, 1999).

10(u)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(x) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 2000).

10(v)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(y) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(w)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(z) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(x)             Non-Qualified Stock Option Contract dated June 12, 2000,
                  between the Registrant and Norman Axelrod (incorporated herein
                  by reference to Exhibit 10(aa) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(y)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(j) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1999).


                                       17
<PAGE>

10(z)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(k) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(aa)            Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(i) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(bb)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Richard Chestnov.

10(cc)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Albert Safer.

10(dd)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Martin Brody.

10(ee)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Norman Axelrod.

10(ff)            Purchase and Sale Agreement dated January 10, 2002 between
                  Mark Nitzberg and the Registrant (incorporated herein by
                  reference to Exhibit 2.1 to the Registrant's Current Report on
                  Form 8-K, File No. 1-5863, dated January 24, 2002).

10(gg)            Consulting Agreement dated January 10, 2002 between Natoosh,
                  LLC, Mark Nitzberg and the Registrant (incorporated herein by
                  reference to Exhibit 2.2 to the Registrant's Current Report on
                  Form 8-K, File No. 1-5863, dated January 24, 2002).

10(hh)            Payment and Indemnification Agreement dated January 10, 2002
                  by and among Capital Factors, Inc., Topsville, Inc., Mark
                  Nitzberg and the Registrant (incorporated herein by reference
                  to Exhibit 2.3 to the Registrant's Current Report on Form 8-K,
                  File No. 1-5863, dated January 24, 2002).


Subsidiaries of the Registrant.

99(a)             Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

--------------------
* Management contract or compensatory plan or arrangement


         (b)      Reports on Form 8-K.
                  --------------------

                  No reports on Form 8-K were filed by the Registrant during the
                  three months ended June 30, 2001.

         (c)      Exhibits.
                  ---------

                  Exhibits are listed in response to Item 14(a)3.

         (d)      Financial Statement Schedules.
                  ------------------------------

                  Financial Statement Schedules are listed in response to
                  Item 14(a)2.


                                       18
<PAGE>

JACLYN, INC. AND SUBSIDIARIES


TABLE OF CONTENTS
                                                                         Page

INDEPENDENT AUDITORS' REPORT                                             F-1

FINANCIAL STATEMENTS:

         Consolidated Balance Sheets - As of June 30, 2002 and 2001      F-2

         Consolidated Statements of Operations - For the years ended
         June 30, 2002, 2001 and 2000                                    F-3

         Consolidated Statements of Cash Flows - For the years ended
         June 30, 2002, 2001 and 2000                                 F-4 to F-5

         Consolidated Statements of Changes in Stockholders'
         Equity - For the years ended June 30, 2002, 2001 and 2000       F-6

         Notes to Consolidated Financial Statements                  F-7 to F-22

FINANCIAL STATEMENT SCHEDULE:

         Valuation and Qualifying Accounts                               F-23

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Jaclyn, Inc.
West New York, New Jersey


         We have audited the accompanying consolidated balance sheets of Jaclyn,
Inc. and subsidiaries as of June 30, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three fiscal years in the period ended June 30, 2002. Our audits also included
the consolidated financial statement schedule of Jaclyn, Inc. and subsidiaries
listed in item 15(a). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Jaclyn, Inc. and
subsidiaries as of June 30, 2002 and 2001, and the results of their operations
and their cash flows for each of the three fiscal years ended June 30, 2002, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein.

         As discussed in Note I to the consolidated financial statements, the
Company changed its method of accounting for goodwill amortization in fiscal
2002.

Deloitte & Touche LLP
September 24, 2002
New York, New York

                                       F-1
<PAGE>

<TABLE>
                                  JACLYN, INC. AND SUBSIDIARIES

                                   CONSOLIDATED BALANCE SHEETS
                                      JUNE 30, 2002 AND 2001

------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS                                                                2002               2001
<S>                                                                <C>               <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS                                          $    95,000       $    66,000
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL
    ACCOUNTS: 2002, $160,000; 2001, $37,000                         14,667,000         8,953,000
INVENTORIES                                                         11,395,000         9,483,000
PREPAID EXPENSES AND OTHER CURRENT ASSETS                            1,732,000           830,000
DEFERRED INCOME TAXES                                                  862,000         1,019,000
                                                                   -----------       -----------
    TOTAL CURRENT ASSETS                                            28,751,000        20,351,000
PROPERTY, PLANT AND EQUIPMENT - NET                                  1,211,000         1,198,000
GOODWILL                                                             3,330,000         1,768,000
OTHER ASSETS                                                           321,000            31,000
DEFERRED INCOME TAXES                                                1,805,000         1,683,000
                                                                   -----------       -----------
                                                                   $35,418,000       $25,031,000
                                                                   ===========       ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE - BANK                                               $ 9,095,000       $ 2,555,000
ACCOUNTS PAYABLE                                                     7,081,000         3,716,000
COMMISSIONS PAYABLE                                                    129,000           424,000
ACCRUED PAYROLL AND RELATED EXPENSES                                   985,000           484,000
OTHER CURRENT LIABILITIES                                            1,714,000           695,000
                                                                   -----------       -----------
    TOTAL CURRENT LIABILITIES                                       19,004,000         7,874,000
                                                                   -----------       -----------
OTHER LONG TERM LIABILITIES                                             61,000           100,000
                                                                   -----------       -----------
DEFERRED INCOME TAXES                                                  529,000           494,000
                                                                   -----------       -----------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, PAR VALUE $1: AUTHORIZED, 1,000,000
SHARES; ISSUED NONE                                                          -                 -

COMMON STOCK, PAR VALUE $1: AUTHORIZED, 5,000,000 SHARES;
ISSUED 2002 and 2001 3,368,733 SHARES                                3,369,000         3,369,000
ADDITIONAL PAID-IN CAPITAL                                          12,117,000        12,117,000
RETAINED EARNINGS                                                    7,575,000         8,314,000
                                                                   -----------       -----------
                                                                    23,061,000        23,800,000
LESS: TREASURY STOCK AT COST (2002 and 2001: 807,342 SHARES)         7,237,000         7,237,000
                                                                   -----------       -----------
    TOTAL STOCKHOLDERS' EQUITY                                      15,824,000        16,563,000
                                                                   -----------       -----------
                                                                   $35,418,000       $25,031,000
                                                                   ===========       ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-2
<PAGE>

<TABLE>
                                     JACLYN, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                YEARS ENDED JUNE 30, 2002, 2001 AND 2000

-------------------------------------------------------------------------------------------------------
<CAPTION>
                                                      2002                2001                2000
<S>                                               <C>                 <C>                 <C>
Net sales                                         $ 81,031,000        $ 79,570,000        $ 72,078,000
Cost of goods sold (including a non-cash
   charge of $389,000 in 2002 - See Note I)         62,083,000          61,575,000          54,183,000
                                                  ------------        ------------        ------------
Gross profit                                        18,948,000          17,995,000          17,895,000
                                                  ------------        ------------        ------------
Shipping, selling and administrative
   expenses (including a non-cash charge of
   $900,000 in 2002 - See Note I)                   19,823,000          17,748,000          17,572,000
Interest expense                                       293,000             234,000             100,000
Interest income                                         (3,000)           (109,000)           (136,000)
Other income                                           (11,000)            (34,000)            (47,000)
                                                  ------------        ------------        ------------
(LOSS) EARNINGS  BEFORE INCOME
TAXES                                               (1,154,000)            156,000             406,000
(BENEFIT) PROVISION FOR INCOME
TAXES                                                 (415,000)             56,000             146,000
                                                  ------------        ------------        ------------
NET (LOSS) EARNINGS                               $   (739,000)       $    100,000        $    260,000
Other comprehensive income, net of tax:
Unrealized holding loss on securities
   arising during period                                     -              (5,000)            (18,000)
                                                  ------------        ------------        ------------
NET COMPREHENSIVE (LOSS)
EARNINGS                                          $   (739,000)       $     95,000        $    242,000
                                                  ============        ============        ============
NET (LOSS) EARNINGS PER COMMON
SHARE - BASIC AND DILUTED                         $       (.29)       $        .04        $        .10
                                                  ============        ============        ============
Weighted average number of shares
outstanding - diluted                                2,561,000           2,644,000           2,710,000
                                                  ============        ============        ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3
<PAGE>

<TABLE>
                                           JACLYN, INC. AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     YEARS ENDED JUNE 30, 2002, 2001 AND 2000

-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                    2002               2001               2000
<S>                                                             <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings                                             $  (739,000)       $   100,000        $   260,000
Adjustments to reconcile net (loss) earnings to net
    cash used in operating activities:
        Depreciation and amortization                               341,000            295,000            247,000
        Deferred income taxes                                      (463,000)            (3,000)          (116,000)
        Provision for doubtful accounts                             123,000             (5,000)            23,000
         Non-cash charge - Topsville acquisition                  1,289,000                  -                  -
        Amortization of goodwill                                          -            112,000             95,000
Changes in assets and liabilities:
        (Increase) decrease in accounts receivable               (5,837,000)           746,000            (42,000)
        Increase in inventories                                    (230,000)          (865,000)        (2,277,000)
        (Increase) decrease in prepaid expenses and other
            current assets                                         (833,000)          (208,000)           331,000
       (Increase) decrease in other assets                          (73,000)             9,000             65,000
       Increase (decrease) in accounts payable and other
             current liabilities                                  2,853,000         (2,115,000)         1,286,000
                                                                -----------        -----------        -----------
Net cash used in operating activities                            (3,569,000)        (1,934,000)          (128,000)
                                                                -----------        -----------        -----------

                                                                                                       (Continued)
</TABLE>

                                      F-4
<PAGE>

<TABLE>
JACLYN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2002, 2001 AND 2000

-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                    2002               2001               2000
<S>                                                             <C>                <C>                <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                             (89,000)          (388,000)           (59,000)
    Acquisition                                                  (2,153,000)          (400,000)                 -
    Purchases of securities available for sale                            -           (816,000)                 -
    Proceeds from sales of securities available for sale                  -          2,443,000                  -
                                                                -----------        -----------        -----------
Net cash  (used in) provided by investing activities             (2,242,000)           839,000            (59,000)
                                                                -----------        -----------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase (decrease) in notes payable - bank                   6,540,000          1,285,000           (505,000)
    Payment of acquisition notes                                   (700,000)           (50,000)                 -
    Repurchase of common stock                                            -           (389,000)           (44,000)
                                                                -----------        -----------        -----------
Net cash provided by (used in) financing activities               5,840,000            846,000           (549,000)
                                                                -----------        -----------        -----------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                                                          29,000           (249,000)          (736,000)
CASH AND CASH EQUIVALENTS,
    BEGINNING OF YEAR                                                66,000            315,000          1,051,000
                                                                -----------        -----------        -----------
CASH AND CASH EQUIVALENTS,
    END OF YEAR                                                 $    95,000        $    66,000        $   315,000
                                                                ===========        ===========        ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
    Interest                                                    $   276,000        $   241,000        $    80,000
                                                                -----------        -----------        -----------
    Income taxes                                                $   322,000        $   284,000        $   139,000
                                                                -----------        -----------        -----------
NON-CASH ITEMS:
    Unrealized gain on securities available for sale            $         -        $         -        $     8,000
                                                                -----------        -----------        -----------
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.
                                   (Concluded)

                                       F-5
<PAGE>

<TABLE>
JACLYN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2002, 2001, AND 2000
---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                         COMMON STOCK                                                       TREASURY STOCK
                                  -------------------------    Additional   Accumulated                 -------------------------
                                                                Paid-in    Comprehensive   Retained
                                    Shares        Amount        Capital        Income      Earnings       Shares         Amount
                                  -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>                               <C>           <C>           <C>           <C>           <C>               <C>       <C>
BALANCE, JUNE 30, 1999              3,368,733   $ 3,369,000   $12,117,000   $    23,000   $ 7,954,000       657,342   $ 6,804,000
Unrealized loss on securities
available for sale at
July 1, 1999                                -             -             -       (18,000)            -             -             -
Net earnings                                -             -             -             -       260,000             -             -

Repurchase of Common Stock                  -             -             -             -             -        20,000        44,000
                                  -----------   -----------   -----------   -----------   -----------   -----------   -----------
BALANCE, JUNE 30, 2000              3,368,733     3,369,000    12,117,000         5,000     8,214,000       677,342     6,848,000
Unrealized loss on securities
available for sale at
July 1, 2000                                -             -             -        (5,000)            -             -             -
Net earnings                                -             -             -             -       100,000             -             -

Repurchase of Common Stock                  -             -             -             -             -       130,000       389,000
                                  -----------   -----------   -----------   -----------   -----------   -----------   -----------
BALANCE, JUNE 30, 2001              3,368,733     3,369,000    12,117,000             -     8,314,000       807,342     7,237,000

Net loss                                                                                     (739,000)
BALANCE, JUNE 30, 2002              3,368,733   $ 3,369,000   $12,117,000   $         -   $ 7,575,000       807,342   $ 7,237,000
                                  -----------   -----------   -----------   -----------   -----------   -----------   -----------
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-6
<PAGE>

                          JACLYN, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Jaclyn, Inc. and its subsidiaries (the "Company") are engaged in the design,
manufacture, marketing and sale of apparel, handbags accessories and related
products. The Company sells its products to retailers, including department and
specialty stores, national chains, major discounters and mass volume retailers,
throughout the United States.

The consolidated financial statements include the accounts of the Company and
all of its wholly- owned subsidiaries. All significant intercompany transactions
and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the reported amounts of revenues and expenses during the
reporting period. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America also
requires management to make estimates and assumptions that affect the
disclosures of contingent assets and liabilities at the date of the financial
statements. Significant estimates include inventory provision, sales return,
allowance for doubtful accounts, allowance for sales discounts and lives of
long-lived assets. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash in excess of daily requirements is invested in certificates of deposits and
money market funds with original maturities of three months or less. Such
investments are presented as cash equivalents.

Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, accounts and notes payable and
accrued expenses are assumed to approximate fair value due to their short
maturities. The carrying value of the bank loan, which bears interest at a
variable rate, approximates fair value.

Inventories

Inventory is carried at the lower of cost on a first-in, first-out basis, or
market. Management writes down inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions.

                                       F-7
<PAGE>

Allowances for Doubtful Accounts/Sales Discounts

The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
Company also estimates expenses for customer discounts, programs and incentive
offerings.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. The Company provides for
depreciation and amortization on the straight-line method over the following
estimated useful lives:

Buildings                      25 to 40 years
Machinery and equipment        5 years
Furniture and fixtures         5 years
Leasehold improvements         Lesser of life of the asset or life of the lease
Automobiles and trucks         3 to 5 years


Intangible Assets

Trademarks, included in other assets, are being amortized on a straight-line
basis over periods not exceeding 10 years. Goodwill is the excess of purchase
price over fair value of the net assets acquired in connection with
acquisitions. For a further explanation of the Company's accounting for
goodwill, see Note I, Acquisitions.

Impairment of Long-Lived Assets, excluding goodwill

The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of". For purposes of recognizing and
measuring impairment of long-lived assets, the Company categorizes assets of
production facilities as "Assets to Be Held and Used" and assets of production
facilities that have been closed as "Assets to be Disposed Of." The Company
evaluates assets for impairment at the lowest level of cash flows. Corporate
assets to be held and used are evaluated for impairment based on excess cash
flow after the assessment of production assets. The Company reviews assets for
impairment when changes in circumstances indicate that the carrying value of
long-lived assets may not be recoverable. Such changes include, but are not
limited to, the historical and projected operating performance of the business,
changes in the manner in which the asset is used, specific industry trends and
general economic conditions, or any other indication that the carrying value of
long-lived assets may not be recoverable.

If the sum of the undiscounted expected future cash flows is less than the
carrying amount of the asset, the asset is considered impaired. Impairment
losses are measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. When fair values are not available, the
Company estimates fair value using the expected future cash flows discounted at
a rate commensurate with the risks associated with the recovery of the asset.

Stock Options

As permitted under SFAS No.123, "Accounting for Stock-Based Compensation," the
Company has elected not to adopt the fair value based method of accounting for
its stock-based compensation plans. The Company will continue to apply the
provisions of Accounting Principles

                                       F-8
<PAGE>

Board ("APB") Opinion No.25, "Accounting for Stock Issued to Employees." See
Note F.

Revenue Recognition

Revenue is recognized at the time merchandise is shipped or received by a third
party consolidator, normally the same day of the shipment. Sales returns,
discounts and allowances are recorded as a component of net sales in the period
in which the related revenue is recorded. Products are shipped directly to
customers using third party carriers. The customer takes title and assumes the
risks and rewards of ownership of the products when the merchandise leaves the
Company's warehouse or is received by a third party consolidator, as applicable.

Shipping and Handling Costs

Included in Shipping, Selling and Administrative expenses are all shipping and
handling costs incurred by the Company. Included in revenues are all amounts
billed to a customer in a sale transaction related to shipping and handling.
Shipping and handling reimbursements included in revenue amounted to
approximately $24,000, $20,000 and $81,000 for the years ended June 30, 2002,
2001, and 2000, respectively.

Segment Reporting

The Company operates in a single operating segment - the manufacture of apparel,
women's handbags and related accessories. Revenues from customers are derived
from merchandise sales. The Company's merchandise sales mix by product category
for the last three years was as follows:

                                         Year ended June 30,

Product Category                      2002           2001           2000
----------------                      ----           ----           ----
Apparel                                60%            54%            42%
Handbags                               40%            46%            58%
                              ------------  ------------- --------------
                                      100%           100%           100%
                              ------------  ------------- --------------

During the years ended June 30, 2002, 2001 and 2000, sales revenues derived from
one customer were 19%, 17% and 16%, respectively. Sales to a second customer
were 11%, 15% and 10%, and to a third customer were 10%, 12% and 10%,
respectively. The loss of any one of these customers would have a material
adverse effect on the Company's operations.

The Company relies on suppliers to purchase a variety of raw materials. The
Company had one supplier who in the aggregate constituted 7% of the Company's
purchases for the year ended June 30, 2002. The loss of this supplier would not
have a material adverse effect on the Company's operations since there are
alternative suppliers available.

Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued two new
pronouncements: SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets".

SFAS No. 141 addresses financial accounting and reporting for business
combinations and supersedes APB No. 16 "Business Combinations" and FASB
Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises". All business combinations in the scope of

                                       F-9

<PAGE>

this Statement are to be accounted for using one method, the purchase method.
SFAS 141 is effective as follows: a) use of the pooling-of-interest method is
prohibited for business combinations initiated after June 30, 2001 (that is, the
date of the acquisition is July 2001 or later) and b) the provisions of SFAS 141
also apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001. See Note I for the impact on the
Consolidated Financial Statements.

SFAS No.142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB No.17, "Intangible Assets". On
July 1, 2001, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets."
As a result, we no longer amortize goodwill, but generally we evaluate goodwill
for recoverability. The Company also evaluates goodwill whenever events and
changes in circumstance suggest that the carrying amount may not be recoverable
from its estimated future cash flows. See Note I for the impact on the
Consolidated Financial Statements.

In April 2001, the FASB's Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 00-25, "Vendor Income Statement Characteristics of
Consideration Paid to a Reseller of the Vendor's Products" ("EITF No. 00-25").
In November 2001, EITF No. 00-25 was codified in EITF Issue No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)." EITF No. 01-09 concluded that consideration
from a vendor to a reseller of the vendor's products is presumed to be a
reduction of the selling prices of the vendor's products and, therefore, should
be characterized as a reduction of revenue when recognized in the vendor's
income statement. That presumption is overcome and the consideration
characterized as a cost incurred if a benefit is or will be received from the
recipient of the consideration if certain conditions are met. The Company
adopted this pronouncement in our fourth quarter in the fiscal year ended June
30, 2002 and there was no impact on our consolidated financial statements.

Accounting Standards Not Yet Adopted

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. The provisions of SFAS No. 143 are effective for fiscal years
beginning after June 15, 2002. The Company will adopt SFAS No. 143 beginning in
the first fiscal quarter of fiscal 2003. The Company believes that the adoption
of SFAS No. 143 will not have a material impact on our financial position.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ." The primary objectives of SFAS No. 144 were to develop one
accounting model based on the framework established in SFAS No. 121, and to
address significant implementation issues. The provisions of SFAS No. 144 are
effective for fiscal years beginning after December 15, 2001. The Company will
adopt SFAS No. 144 in the first fiscal quarter of fiscal 2003. The Company
believes that the adoption of SFAS No. 144 will not have a material impact on
our financial position.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS 145"). SFAS 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gains and

                                      F-10
<PAGE>

losses from debt extinguishments as extraordinary items, eliminates the
provisions of SFAS No. 44 regarding the Motor Carrier Act of 1980 and amends the
provisions of SFAS No. 13 to require that certain lease modifications be treated
as sale leaseback transactions. The provisions of SFAS No. 145 related to the
classification of debt extinguishment is effective for fiscal years beginning
after May 15, 2002. The adoption of SFAS No. 145 is not expected to have a
material impact on the Company's financial position.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact of SFAS No. 146 on its consolidated financial statements.

Reclassifications

Certain items in prior years have been reclassified for comparative purposes.

                                      F-11

<PAGE>

NOTE B - INVENTORIES

Inventories consist of the following:


                                                      June 30,
                                            2002                    2001

Raw material                         $         4,816,000     $        3,955,000
Work in process                                1,482,000              1,751,000
Finished goods                                 5,097,000              3,777,000
                                     -------------------     ------------------
                                     $        11,395,000     $        9,483,000
                                     ===================     ==================

NOTE C - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is summarized as follows:

                                                      June 30,
                                            2002                    2001

Land                                 $           162,000     $          162,000
Buildings                                      1,181,000              1,181,000
Machinery and equipment                        2,117,000              1,831,000
Furniture and fixtures                           444,000                414,000
Leasehold improvements                         1,054,000              1,022,000
Automobiles and trucks                            97,000                126,000
                                     -------------------     ------------------
                                               5,055,000              4,736,000
Less accumulated

depreciation and

amortization                                   3,844,000              3,538,000
                                     -------------------     ------------------
                                     $         1,211,000     $        1,198,000
                                     ===================     ==================


NOTE D - COMMITMENTS & CONTINGENCIES

The Company leases office facilities under non-cancelable leases that expire in
various years through the year 2009.

Future minimum payments under non-cancelable operating leases with initial or
remaining terms of one year or more are as follows:

                 Year Ended                Office and Showroom
                  June 30,                     Facilities

                    2003                   $         683,000
                    2004                             714,000
                    2005                             492,000
                    2006                             291,000
                    2007                             258,000
                 After 2007                          419,000

Rental expense, including real estate taxes, for all operating leases, totaled
$669,000, $448,000, and $454,000 for 2002, 2001 and 2000, respectively.

                                      F-12

<PAGE>

The Company has entered into licensing arrangements with several companies. The
Company is obligated, in certain instances, to pay minimum royalties over the
term of the licensing agreements which agreements expire in various years
through 2004. Aggregate minimum commitments by fiscal year are as follows:

              Fiscal                   Minimum
                Year                 Commitments

                2003                   $115,000
                2004                    247,000

Various legal proceedings, in the form of lawsuits and claims, which occur in
the normal course of business are pending against the Company and its
subsidiaries. In the opinion of management, disposition of these matters is not
expected to materially affect the Company's financial position, cash flows or
results of operations.

NOTE E - CREDIT FACILITIES

During fiscal 2002 the Company amended its bank line of credit to accommodate
the recently announced acquisition of Topsville, Inc. The credit facility which
extends through December 2, 2002, now provides for short-term loans, letters of
credit and bankers acceptances amounting to $24,000,000. The Company can borrow
up to $13,000,000 with the Company's inventory and accounts receivable pledged
to the bank as collateral, provided it maintains a minimum ratio of cash and
accounts receivable to bank borrowing of 1.25 to 1, and a minimum tangible net
worth of $11,500,000. Borrowing on the short-term line of credit was $9,095,000
and $2,555,000 as of June 30, 2002 and 2001, respectively. At June 30, 2002 and
2001, the Company was contingently obligated on open letters of credit for
approximately $8,907,000 and $4,390,000. There was no borrowing on the banker's
acceptance line as of June 30, 2002 and 2001. Borrowing during the year was at
the bank's prime rate or below, at the option of the Company. The bank's prime
rate at June 30, 2002 was 4.75%. During fiscal 2002, the average amount
outstanding under the short- term line was $6,235,000 with a weighted average
interest rate of 4.75%. During 2001, the average amount outstanding under the
short-term line was $2,610,000 with a weighted average interest rate of 9.38%.
The maximum amount outstanding during fiscal 2002 and fiscal 2001 was
$10,000,000 and $6,900,000, respectively.

NOTE F - STOCK OPTIONS

The Company has a Stock Option Plan (the "Plan") permitting the granting of
incentive stock options and non-qualified stock options to purchase up to
300,000 shares of common stock. Under the Plan, the option price cannot be less
than the fair market value of the stock as of the date of the granting of the
option and 110% of the fair market value for certain management employees.
Options, which may be granted to November 2010, are exercisable as determined by
the Board of Directors.

The Company had a 1990 Incentive Stock Option Plan (the "1990 Plan") permitting
the granting of options to purchase up to 500,000 shares of common stock. Under
the 1990 Plan, the option price

                                      F-13
<PAGE>

could not be less than the fair market value of the stock as of the date of the
granting of the option and 110% of the fair market value for certain management
employees. The 1990 plan covering these 500,000 shares expired October 2000.

As permitted under SFAS 123, "Accounting for Stock-Based Compensation" the
Company has elected not to adopt the fair value based method of accounting for
its stock based compensation. The Company will continue to apply the provisions
of Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock
Issued to Employees." If compensation cost for the Company's stock option plans
had been determined in accordance with the fair value method prescribed by SFAS
No. 123, the Company's net (loss) earnings would have been $(803,000), $61,000
and $236,000 for 2002, 2001, and 2000, or $(.31), $.02 and $.09 per diluted
share, respectively. This pro forma information may not be representative of the
amounts to be expected in future years.

Stock option transactions are summarized below:

<TABLE>
<CAPTION>
                                         2002                               2001                              2000

                                                Weighted                          Weighted                           Weighted
                                                 Average                           Average                            Average
                                                Exercise                          Exercise                           Exercise
                               Shares             Price           Shares            Price            Shares            Price
<S>                       <C>                <C>               <C>             <C>               <C>              <C>
Outstanding -
beginning of year                  422,161   $          3.99         347,661   $          4.09          339,661   $          5.86

Granted                                  -                 -         150,500              2.74            8,000              2.75

Forfeited                         (10,000)              4.06        (76,000)              4.45                -                 -
                          ----------------   ---------------   -------------   ---------------   --------------   ---------------
Outstanding and
exercisable - end of
year                               412,161   $          3.53         422,161   $          3.99          347,661   $          4.09
                          ================   ===============   =============   ===============   ==============   ===============
Weighted-average
fair value of options
granted during the
year                                         $             -                   $          2.74                    $          1.51
</TABLE>

                                      F-14
<PAGE>

The following table summarizes information about stock options outstanding at
June 30, 2002:

<TABLE>
<CAPTION>
                              Options Outstanding                                             Option Exercisable
-------------------------------------------------------------------------------    -----------------------------------------
                                           Weighted-
                                            Average                                      Number
    Range of            Number             Remaining             Weighted              Exercisable            Weighted
    Exercise          Outstanding         Contractual            Average               at June 30,            Average
     Prices           at June 30,         Life (Yrs)          Exercise Price              2002             Exercise Price
                         2002
----------------- ------------------- -------------------  --------------------    -------------------  --------------------
<S>               <C>                 <C>                  <C>                     <C>                  <C>
$2.25 to
$2.83                         297,500                6.36                 $2.55                297,500                 $2.55

$4.06 to
$4.47                          81,500                3.61                 $4.08                 81,500                 $4.08

$5.13                           5,000                4.43                                                              $5.13

$12.38                         28,161                1.47                $12.38                 28,161                $12.38
                  -------------------                                              -------------------
Totals                        412,161                                                          412,161
                  -------------------                                              -------------------
</TABLE>

The fair value of each option grant is estimated on the date of each grant using
the Black-Scholes option-pricing model. The following weighted average
assumptions were used for grants in 2001 and 2000: risk-free interest rate of
4.2% and 6.15%, expected life of 10 years; expected volatility of 177%; and
28.85%; dividend yield of 0%. The fair values generated by the Black-Scholes
model may not be indicative of the future benefit, if any, that may be received
by the option holder.

NOTE G - PREFERRED STOCK

The Board of Directors of the Company has authority (without action by the
stockholders) to issue the authorized and unissued preferred stock in one or
more series and, within certain limitations, to determine the voting rights,
preference as to dividends and in liquidation, conversion and other rights of
each such series. No shares of preferred stock have been issued.

                                      F-15
<PAGE>

NOTE H - INCOME TAXES

The components of the Company's tax provision (benefit) are as follows:

                                             June 30,
                              2002             2001             2000
Current:
    Federal                $       -        $       -        $       -
    State and Local           32,000           17,000            7,000
   Foreign                    16,000           42,000          255,000
                           ---------        ---------        ---------
                              48,000           59,000          262,000

Deferred:
   Federal and State        (463,000)          (3,000)        (116,000)
                           ---------        ---------        ---------

Provision (benefit)        $(415,000)       $  56,000        $ 146,000
                           =========        =========        =========

Reconciliation between the provision for income taxes computed by applying the
federal statutory rate to income before income taxes and the actual provision
for income taxes is as follows:

<TABLE>
<CAPTION>
June 30,                                                2002         2001        2000
--------------------------------------------------   ---------    ---------   ---------
<S>                                                  <C>          <C>         <C>
Provision (benefit) for income taxes at statutory        (34.0)%       34.0%       34.0%
rate
State and local income taxes net of federal tax           (3.0)         5.0         5.0
benefit
Tax exempt interest                                        -           (8.0)       (5.7)
Other                                                      1.0          5.0         2.7
                                                     ---------    ---------   ---------
Effective tax rate percent                               (36.0)%       36.0%       36.0%
                                                     ---------    ---------   ---------
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The income tax effects of
significant items comprising the Company's net deferred tax assets and
liabilities as of June 30, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
--------------------------    --------------------------    --------------------------
June 30,                                 2002                          2001
--------------------------    --------------------------    --------------------------
                                Assets       Liabilities      Assets       Liabilities
<S>                           <C>            <C>            <C>            <C>

Depreciation
and amortization              $         -    $   427,000    $         -    $   376,000

Leases                                  -        102,000              -        118,000

Foreign taxes                     370,000              -        370,000              -

Inventory                         564,000              -        657,000              -

Bad debt, sales
allowances and
other reserves                    133,000              -         95,000              -

NOL and tax credit              1,270,000              -      1,046,000              -
carryforwards

Other                             330,000              -        534,000              -
                              -----------    -----------    -----------    -----------
                              $ 2,667,000    $   529,000    $ 2,702,000    $ 494,00000
                              ===========    ===========    ===========    ===========
</TABLE>

As of June 30, 2002 the Company has a federal net operating loss carryforward of
$2,364,000 for income tax purposes that expires between the years 2013 and 2021.

                                      F-16

<PAGE>

NOTE I - ACQUISITIONS

On January 10, 2002, the Company acquired all of the issued and outstanding
stock of Topsville, Inc., a New York City based manufacturer and distributor of
private label infants' and children's clothing. The tangible and intangible
assets acquired include, among other things, finished goods, work-in-process and
raw material inventory, customer orders, trade names, office leases in New York
City and Hong Kong, an office/warehouse facility in Florida, and office
equipment, furniture and fixtures. The Company used its existing line of bank
credit to pay for a portion of the purchase price at closing.

The aggregate purchase price for the acquisition was $3,246,000, of which
$1,746,000 was paid at the closing of the transaction and the remainder of which
to be paid during the fifteen-month period after closing. At June 30, 2002,
$1,000,000 is unpaid under the terms of the purchase agreement. The following
table sets forth the excess of purchase price over book value:

Cash paid for 100% of stock in Topsville, Inc.                   $   1,746,000

Deferred portion of purchase price                                   1,500,000
                                                                 -------------
Purchase price                                                       3,246,000

Transaction expenses                                                   407,433

Historical book value of net assets acquired,
primarily inventory, adjusted for assets and
liabilities not assumed                                             (1,146,000)

Excess of purchase price over historical
       book value of assets acquired                             $   2,507,433
                                                                 -------------

The excess of purchase price over net book value of assets acquired totaling
$2,507,433 was allocated to the tangible and intangible assets in accordance
with SFAS No. 141 "Business Combinations". The following table reflects the
excess purchase price allocated to tangible and intangible assets based on their
fair values.

Adjust inventories to fair value                                 $     388,830

Order backlog                                                          972,990

Adjust property & equipment to fair value                               16,134

Trademarks & patents                                                   100,000

Goodwill                                                             1,561,542

Changes in tax effect of the above adjustments
       (except goodwill)                                              (532,063)
                                                                 -------------
                                                                 $   2,507,433
                                                                 -------------

                                      F-17
<PAGE>

Assuming the acquisition was acquired on July 1, 1999, the pro forma results
would have been as follows (in thousands, except per share amounts) (unaudited):

                                                     Year Ended June 30,

                                                 2002       2001       1999
                                                 ----       ----       ----

Total revenues                                $ 111,474  $ 104,940  $  96,121

Net income (loss)                             $     385  $     383  $    (172)

Basic and diluted earnings (loss) per share   $     .15  $     .14  $    (.06)


The Company recorded a pre-tax, non-cash amortization charge to earnings of
$1,289,000 ($389,000 to cost of goods sold and $900,000 to amortization expense
within selling and administrative expenses) for the year ended June 30, 2002.
These charges primarily represent, the allocation of a portion of the purchase
price to fair value the inventory and to assign a value to those open orders
(backlog) purchased from Topsville, Inc. which have been shipped from the date
of acquisition to June 30, 2002. The remaining $79,000 of backlog allocated to
open orders acquired with the acquisition will be charged to earnings during the
first quarter of fiscal year 2003.

The changes in the carrying amount of goodwill during the year ended June 30,
2002, is as follows:

     Balance as of June 30, 2001                              $ 1,768,000

     Goodwill acquired during period                            1,562,000
                                                              -----------
     Balance as of June 30, 2002                              $ 3,330,000
                                                              ===========

Other intangibles totaling $174,000, included in "Other Assets", consist of
amounts allocated to tradenames, patents and backlog relating to the acquisition
of Topsville, Inc. The Company will incur $89,000 of amortization expense in
2003. Additional amortization expense of $10,000 will be incurred through 2011.

On January 19, 2001, the Company completed the acquisition of certain assets of
I. Appel Corporation, which manufactures and distributes robes, dusters and
loungewear to department stores. The aggregate purchase price for the
acquisition was approximately $700,000 for goodwill, certain tangible fixed
assets and including $100,000 in acquisition costs. A total of $400,000 was paid
during the year ended June 30, 2001 with the remainder to be paid in quarterly
instalments through October 2002. Such amounts will be paid from current working
capital. The proforma impact of the acquisition on the Company's operations for
fiscal 2001 and fiscal 2000 was not significant.

Had the Company been accounting for its goodwill under SFAS No. 142 for all
periods presented, the Company's net (loss) earnings and earnings per share
would have been as follows (in thousands, except per share amounts):

                                      F-18
<PAGE>

                                                          Year Ended
                                                           June 30,

                                                 2002        2001        2000
                                               --------    --------    --------

Net (loss) earnings                            $   (739)   $    100    $    260

Goodwill amortized (net of taxes)                      -         79          61

Adjusted net (loss) earnings                   $   (739)   $    179    $    321
                                               --------    --------    --------

Basic and diluted:

(Loss) earnings per share                      $   (.29)   $    .04    $    .10

Effect of accounting change                            -        .03         .02

Adjusted net (loss) earnings per share         $   (.29)   $    .07    $    .12
                                               --------    --------    --------

NOTE J - EMPLOYEE'S BENEFIT PLANS

The Company has a trusteed, defined-benefit pension plan for certain of their
salaried and hourly personnel. The plan provides pension benefits that are based
on a fixed amount of compensation per year of service, career average pay or on
the employee's compensation during a specified number of years before
retirement. The Company's funding policy is to make annual contributions
required by the Employee Retirement Security Act of 1974.

Fiscal Year Ended June 30,                              2002           2001

CHANGE IN BENEFIT OBLIGATION:

   Net benefit obligation at beginning of year      $ 3,731,000    $ 3,318,000

   Service cost                                         288,000        264,000

   Interest cost                                        247,000        216,000

   Actuarial loss                                       278,000         71,000

   Gross benefits paid                                 (102,000)      (138,000)
                                                    -----------    -----------

   Net benefit obligation at end of year            $ 4,442,000    $ 3,731,000
                                                    ===========    ===========

CHANGE IN PLAN ASSETS:

   Fair value of plan assets at beginning of year   $ 3,450,000    $ 2,798,000

   Employer contributions                               871,000        493,000

   Gross benefits paid                                 (102,000)      (138,000)

   Actual return on plan assets                         160,000        297,000
                                                    -----------    -----------

   Fair value of plan assets at end of year           4,379,000      3,450,000
                                                    ===========    ===========

   Funded status at end of year                         (63,000)      (281,000)

   Unrecognized net actuarial loss                    1,125,000        812,000

   Unrecognized transition amount                       (87,000)      (126,000)

   Unrecognized prior service cost                        2,000          3,000
                                                    -----------    -----------

   Prepaid benefit costs                            $   977,000    $   408,000
                                                    ===========    ===========

                                      F-19
<PAGE>

Pension expenses includes the following components:

Fiscal Year Ended June 30,                 2002          2001           2000

COMPONENTS OF NET PERIODIC BENEFIT
COST:

   Service cost                          $ 288,000     $ 264,000     $ 191,000

   Interest cost                           247,000       216,000       202,000

   Expected return on assets              (160,000)     (208,000)     (188,000)

   Amortization of prior service cost        1,000         1,000         1,000

   Amortization of transition assets       (39,000)      (39,000)      (39,000)

   Amortization of actuarial loss          (35,000)       45,000        39,000
                                         ---------     ---------     ---------

   Net periodic cost                     $ 302,000     $ 279,000     $ 206,000
                                         =========     =========     =========

Assumptions used in determining the net periodic cost:

June 30,                                             2002      2001      2000

     Discount rates                                  6.25%     6.50%     6.75%

     Rates of increase in compensation levels        3.00%     3.00%     3.50%

     Expected long-term rate of return on assets     6.50%     7.00%     6.75%


The Defined Benefit Pension Plan assets include 22,654 shares of the Company's
common stock with a market value of approximately $41,000 and $58,000 at June
30, 2002 and 2001, respectively.

The Company maintains a non-contributory Employee Stock Ownership Plan (the
"ESOP") and Trust, for its employees who are not covered by a collective
bargaining agreement. Contributions to the ESOP are at the discretion of the
Company's Board of Directors. There was no ESOP expense for the years ended June
30, 2002, 2001 and 2000.

Vesting occurs after five years of service. However, if the ESOP is deemed
"top-heavy", vesting will occur at the rate of 20% per year after the completion
of the second year of service.

The Company has a 401-K savings plan for the benefit of its Topsville, Inc.
employees, which existed prior to the Company's acquisition of Topsville. No
contributions by the Company were made during fiscal 2002.

                                      F-20
<PAGE>

NOTE K - NET EARNINGS PER SHARE

The Company's calculation of Basic and Diluted Net Earnings (Loss) Per Share are
as follows (in thousands, except per share amounts) :

<TABLE>
<CAPTION>
                                                                  Year Ended June 30,

                                                         2002            2001             2000
<S>                                                  <C>             <C>              <C>
Basic Net (Loss) Earnings Per Share:
Net (Loss) Earnings                                  $      (739)    $        100     $        260
Basic Weighted Average Shares Outstanding                   2,561           2,610            2,696
                                                     ------------    ------------     ------------
Basic Net (Loss) Earnings Per Common Share           $      (.29)    $        .04     $        .10
                                                     ------------    ------------     ------------

Diluted Net Earnings (Loss) Per Share:
Net (Loss) Earnings                                  $      (739)    $        100     $        260
                                                     ------------    ------------     ------------
Basic Weighted Average Shares Outstanding                   2,561           2,610            2,696
Add: Dilutive Options                                         (a)              34               14
                                                     ------------    ------------     ------------
Diluted Weighted Average Shares Outstanding                 2,561           2,644            2,710
Diluted Net (Loss) Earnings Per Common Share         $      (.29)    $        .04     $        .10
                                                     ------------    ------------     ------------
</TABLE>

(a):  Options are not considered part of the diluted weighted average share
      calculation where there is a loss for the period, since they would be
      anti-dilutive.

Options to purchase 344,000 and 208,000 common shares were outstanding as of
June 30, 2001 and 2000 respectively, but were not included in the computation of
diluted earnings per share because the exercise price of the options exceeded
the average market price and would have been anti-dilutive.

NOTE L - SUBSEQUENT EVENT

On August 14, 2002 the Company borrowed $3,250,000 under a fifteen-year mortgage
obtained from a bank and secured by a building owned by the Company, with a book
value of $331,000. However, the mortgage is renewable at the option of both the
Company and the bank after each of the first two five-year periods. At the time
of each renewal a new interest rate, currently fixed at 7%, will be established
based on the then prevailing rates. The mortgage proceeds are being used for
general working capital purposes.

                                      F-21
<PAGE>

NOTE M - UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data, in thousands of dollars except for per
share amounts, for the fiscal years ended June 30, 2002, and 2001 are as
follows:

<TABLE>
<CAPTION>
                                                              Three Months Ended
                                  ----------------------------------------------------------------------------
                                     June 30,             March 31,          December 31,       September 30,
                                       2002                 2002                 2001                2001
<S>                               <C>                 <C>                  <C>                 <C>
Net sales                         $        25,133     $        22,020      $        15,658     $        18,220

Gross profit                                5,845               4,832                3,705               4,566
Net (loss) earnings -

See Note below                               (171)               (505)                (116)                 53

Net (loss) earnings per
common share - basic
and diluted - See Note            $          (.07)    $          (.20)     $          (.04)    $           .02
below
</TABLE>

The periods ended March 31, 2002 and June 30, 2002 include non-cash charges of
$307 and $58 ($.12 and $.20 per share) for the amortization of open order
backlog and an adjustment to fair value in connection with the Topsville
acquisition.

<TABLE>
<CAPTION>
                                                              Three Months Ended
                                  ----------------------------------------------------------------------------
                                     June 30,             March 31,          December 31,       September 30,
                                       2001                 2001                 2000                2000
<S>                               <C>                 <C>                  <C>                 <C>
Net sales                         $        18,360     $        17,720      $        23,364     $        20,126

Gross profit                                4,249               4,251                4,836               4,659

Net (loss) earnings                          (227)                 31                  162                 134

Net (loss) earnings per
common share - basic
and diluted                       $          (.08)    $           .01      $           .06     $           .05
</TABLE>

                                      F-22
<PAGE>


<TABLE>
JACLYN INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<CAPTION>
                              Column A                        Column C                         Column D            Column E

                                                             Additions
                                              ----------------------------------------
                                                    Charged               Charged
                             Balance at            (Credited)                to                                    Balance at
                             beginning            to costs and            accounts            Deductions             end of
Description                  of period              expenses                (1)                  (2)                 period
<S>                       <C>                 <C>                     <C>                 <C>                   <C>
Year ended June
30, 2002                  $         37,000    $            108,000    $         15,000                     -    $        160,000
                          ----------------    --------------------    ----------------    ------------------    ----------------
Year ended June
30, 2001                  $         42,000    $            (16,000)   $         11,000                     -    $         37,000
                          ----------------    --------------------    ----------------    ------------------    ----------------
Year ended June
30, 2000                  $        415,000    $             23,000    $         31,000    $          427,000    $         42,000
                          ----------------    --------------------    ----------------    ------------------    ----------------

<FN>
(1)   Collection of amounts previously written off.

(2)   Fully reserved accounts eliminated.
</FN>
</TABLE>

                                      F-23
<PAGE>

                                   SIGNATURES
                                   ----------

          Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                               JACLYN, INC.

                                               By: /s/ Allan Ginsburg
                                                   ----------------------------
September 24, 2002                                 ALLAN GINSBURG, Chairman
                                                   of the Board

          Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

/s/ Allan Ginsburg            Chairman of the Board          September 24, 2002
-------------------------     and Director
ALLAN GINSBURG

/s/ Robert Chestnov           President, Principal           September 24, 2002
-------------------------     Executive Officer and
ROBERT CHESTNOV               Director

/s/ Anthony Christon          Chief Financial Officer,       September 24, 2002
-------------------------     Principal Financial and
ANTHONY CHRISTON              Accounting Officer

/s/ Abe Ginsburg              Director                       September 24, 2002
-------------------------
ABE GINSBURG

/s/ Howard Ginsburg           Director                       September 24, 2002
-------------------------
HOWARD GINSBURG

/s/ Norman Axelrod            Director                       September 24, 2002
-------------------------
NORMAN AXELROD


/s/ Martin Brody              Director                       September 24, 2002
-------------------------
MARTIN BRODY


/s/ Richard Chestnov          Director                       September 24, 2002
-------------------------
RICHARD CHESTNOV


/s/ Al Safer                  Director                       September 24, 2002
-------------------------
AL SAFER


<PAGE>

                                 CERTIFICATIONS

          I, Robert Chestnov, certify that:

          1. I have reviewed this annual report on Form 10-K of Jaclyn, Inc.;

          2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

          3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

Date:  September 24, 2002

 /s/ Robert Chestnov
-----------------------------------------
Robert Chestnov, President and
Principal Executive Officer

          I, Anthony Christon, certify that:

          1. I have reviewed this annual report on Form 10-K of Jaclyn, Inc.;

          2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

          3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

Date:  September 24, 2002

 /s/ Anthony Christon
-----------------------------------------
Anthony Christon, Principal Financial
Officer


<PAGE>

       ==================================================================



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                       ----------------------------------




                                    EXHIBITS
                                       to
                           ANNUAL REPORT ON FORM 10-K
                               FOR THE FISCAL YEAR
                               ENDED JUNE 30, 2002



                       ----------------------------------



                                  JACLYN, INC.



       ==================================================================
<PAGE>

                                  EXHIBIT INDEX
                                  -------------

Exhibit No.       Description
-----------       -----------

3(a)              Certificate of Incorporation of the Registrant (incorporated
                  herein by reference to Exhibit 3(a) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1994).

3(b)              By-Laws of the Registrant (incorporated herein by reference to
                  Exhibit 3(b) to the Registrant's Annual Report on Form 10-K,
                  File No. 1-5863, for the fiscal year ended June 30, 1991).

4(a)              Promissory Note of the Registrant dated August 14, 2002
                  payable to the order of Hudson United Bank ("HUB") in the
                  principal amount of $3,250,000.

4(b)              Mortgage, Security Agreement and Financing Statement dated
                  August 14, 2002 between the Registrant and HUB.

10(d)             Incentive Stock Option Plan of the Registrant (incorporated
                  herein by reference to Exhibit 10(f) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1988).

10(e)             1984 Employee Stock Option Plan of the Registrant
                  (incorporated herein by reference to Exhibit 10(f) to the
                  Registrant's Annual Report on Form 10-K, File No. 1- 5863, for
                  the fiscal year ended June 30, 1989).*

10(f)             1990 Stock Option Plan of the Registrant, as amended
                  (incorporated herein by reference to Exhibit 10(g) to the
                  Registrant's Annual Report on Form 10-K, File No. 1-5863, for
                  the fiscal year ended June 30, 1991).*

10(g)             Amended and Restated Stockholders' Agreement dated July 30,
                  1996 among the Registrant and the persons listed on Schedule A
                  thereto (incorporated herein by reference to Exhibit 10(j) to
                  the Registrant's Annual Report on Form 10K, file number
                  1-5863, for the fiscal year ended June 30, 1996).

10(h)             Key Executive Disability Plan of the Registrant (incorporated
                  herein by reference to Exhibit 10(m) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863,
                  for the fiscal year ended June 30, 1988).*

10(i)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(i) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(j)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(j) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1999).

10(k)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(j) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(l)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Robert Chestnov (incorporated herein by
                  reference to Exhibit 10(m) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*
<PAGE>

10(m)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Howard Ginsburg (incorporated herein by
                  reference to Exhibit 10(n) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(n)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Allan Ginsburg (incorporated herein by
                  reference to Exhibit 10(o) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(o)             1996 Non-Employee Director Stock Option Plan (incorporated by
                  reference to Exhibit 10(o) to the Registrant's Annual Report
                  on Form 10-K, File No. 1- 5863, for the fiscal year ended June
                  30, 1998).*

10(p)             Non-Qualified Stock Option Contract dated December 3, 1996
                  between the Registrant and Martin Brody (incorporated by
                  reference to Exhibit 10(p) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1997).

10(q)             Non-Qualified Stock Option Contract dated December 3, 1996
                  between the Registrant and Richard Chestnov (incorporated by
                  reference to Exhibit 10(q) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1997).

10(r)             Non-Qualified Stock Option Contract dated August 19, 1997
                  between the Registrant and Al Safer (incorporated by reference
                  to Exhibit 10(r) to the Registrant's Annual Report on Form
                  10-K, File No. 1-5863, for the fiscal year ended June 30,
                  1997).

10(s)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Martin Brody (incorporated by
                  reference to Exhibit 10(s) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(t)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Richard Chestnov (incorporated by
                  reference to Exhibit 10(t) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(u)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Albert Safer (incorporated by
                  reference to Exhibit 10(u) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(v)             Letter Agreement dated as of December 29, 1997 between the
                  Registrant and Robert Chestnov (incorporated herein by
                  reference to Exhibit 2.1 to the Registrant's Current Report on
                  Form 8-K, file No. 1-5863, for the fiscal year ended June 30,
                  1998).*
<PAGE>

10(w)             Purchase and Sale Agreement dated January 11, 1999 between
                  Banner Industries of New York, Inc. and Jaclyn,
                  Inc.(incorporated herein by reference to Exhibit 2.1 to the
                  Registrant's Current Report on Form 8-K, file No. 1-5863,
                  dated January 26, 1999).

10(x)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(x) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 2000).

10(y)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(y) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(z)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(z) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(aa)            Non-Qualified Stock Option Contract dated June 12, 2000,
                  between the Registrant and Norman Axelrod (incorporated herein
                  by reference to Exhibit 10(aa) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(bb)            Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(j) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1999).

10(cc)            Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(k) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(dd)            Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(i) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(ee)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Richard Chestnov.

10(ff)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Albert Safer.

10(gg)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Martin Brody.

10(hh)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Norman Axelrod.

10(ii)            Purchase and Sale Agreement dated January 10, 2002 between
                  Mark Nitzberg and the Registrant (incorporated herein by
                  reference to Exhibit 2.1 to the Registrant's Current Report on
                  Form 8-K, File No. 1-5863, dated January 24, 2002).

<PAGE>

10(jj)            Consulting Agreement dated January 10, 2002 between Natoosh,
                  LLC, Mark Nitzberg and the Registrant (incorporated herein by
                  reference to Exhibit 2.2 to the Registrant's Current Report on
                  Form 8-K, File No. 1-5863, dated January 24, 2002).

10(kk)            Payment and Indemnification Agreement dated January 10, 2002
                  by and among Capital Factors, Inc., Topsville, Inc., Mark
                  Nitzberg and the Registrant (incorporated herein by reference
                  to Exhibit 2.3 to the Registrant's Current Report on Form 8-K,
                  File No. 1-5863, dated January 24, 2002).

21                Subsidiaries of the Registrant.

99(a)             Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>4
<FILENAME>ex_4a.txt
<DESCRIPTION>EXHIBIT 4(A)
<TEXT>
                                                                    Exhibit 4(a)
                                                                    ------------

                                 PROMISSORY NOTE
                                 ---------------

$3,250,000.00                                                 Mahwah, New Jersey
                                                                 August 14, 2002

         For value received, the undersigned, Jaclyn, Inc., promises to pay to
the order of HUDSON UNITED BANK (the "Bank"), a New Jersey corporation, having
its principal office located at 1000 MacArthur Boulevard, Mahwah, New Jersey
07430, the sum of THREE THOUSAND TWO HUNDRED FIFTY THOUSAND AND NO/100
(3,250,000.00) DOLLARS, with interest thereon from the date hereof seven and
one-eighth (7.125) percent per annum through and including August 31, 2007 and
commencing September 1, 2007 and continuing until September 30, 2012, the
interest rate payable on this Note shall be at a fixed rate of interest equal to
the interest rate announced by the Federal Home Loan Bank Board of New York as
its Amortization Annual Rate on five (5) year loans with a ten (10) year
amortization schedule rounded up to the nearest one-eighth of one percent, in
effect forty-five (45) days before September 1, 2007 (the "Index") plus 250
basis points; commencing on September 1, 2012 and continuing until this Note is
paid in full, the interest rate payable on this Note shall be at a fixed rate of
interest equal to the interest rate charged by the Federal Home Loan Bank Board
of New York Amortization Annual Rate on five (5) year loans with a five (5) year
amortization schedule rounded up to the nearest one-eighth of one percent, in
effect forty-five (45) days before September 1, 2012 plus 250 basis points. If
the Index is no longer available for reference, the Bank will choose another
comparable index. Interest shall be calculated on the basis of the actual days
elapsed, divided by a 360-day year.

         Commencing on the first day of October 1, 2002 and continuing on the
same day of each and every month thereafter, the undersigned shall make periodic
installment payments of principal and interest until September 1, 2017, on which
date the entire unpaid principal balance of this Note together with all accrued
but unpaid interest and all other amounts due under the Loan Documents (as
hereinafter defined) shall be immediately due and payable. The installment
payment of principal and interest for the five (5) year period commencing
October 1, 2002 shall be $___________. On September 1, 2007 and on September 1,
2012, the Bank will calculate the new monthly payment of principal and interest
for each such five (5) year period based on the interest rate then in effect,
the unpaid principal balance of this Note and the remaining term of this Note.

         This Note, however, will be callable, at the option of the Bank, any
time after September 1, 2007. The Bank will provide the undersigned with ninety
(90) days prior written notice of such payment due date.

         All payments on this Note shall be made in lawful money of the
United States of America in immediately available funds.  All
<PAGE>

payments shall be applied first to interest, then to any other amounts due under
the Loan Documents and the remainder, if any, to principal. If the due date of
any installment payment on this Note falls on a Saturday or Sunday or public
holiday in New Jersey, the due date of the payment shall be extended to the next
succeeding full business day and interest shall be calculated to that day. Any
unpaid interest shall be added to the principal balance of this Note and shall
itself bear interest at the rate provided for herein.

         If all or any portion of the principal balance due on this Note in
excess of the periodic payments of principal and interest due on this Note is
paid prior to September 1, 2003 for any reason, the undersigned shall pay a
prepayment penalty equal to three (3) percent of the principal balance prepaid;
if all or any portion of the principal balance due on this Note in excess of the
periodic payments of principal and interest due on this Note is paid on or after
September 1, 2003, but prior to September 1, 2004 for any reason, the
undersigned shall pay a prepayment penalty equal to three (3) percent of the
principal balance prepaid; if all or any portion of the principal balance due on
this Note in excess of the periodic payments of principal and interest due on
this Note is paid on or after September 1, 2004, but prior to September 1, 2005
for any reason, the undersigned shall pay a prepayment penalty equal to two (2)
percent of the principal balance prepaid; if all or any portion of the principal
balance due on this Note in excess of the periodic payments of principal and
interest due on this Note is paid on or after September 1, 2005, but prior to
September 1, 2006 for any reason, the undersigned shall pay a prepayment penalty
equal to two (2) percent of the principal balance prepaid; if all or any portion
of the principal balance due on this Note in excess of the periodic payments of
principal and interest due on this Note is paid on or after September 1, 2006,
but prior to September 1, 2007 for any reason, the undersigned shall pay a
prepayment penalty equal to one (1) percent of the principal balance prepaid; if
all or any portion of the principal balance due on this Note in excess of the
periodic payments of principal and interest due on this Note is paid on or after
September 1, 2007, but prior to September 1, 2008 for any reason, the
undersigned shall pay a prepayment penalty equal to three (3) percent of the
principal balance prepaid; if all or any portion of the principal balance due on
this Note in excess of the periodic payments of principal and interest due on
this Note is paid on or after September 1, 2008, but prior to September 1, 2009
for any reason, the undersigned shall pay a prepayment penalty equal to three
(3) percent of the principal balance prepaid; if all or any portion of the
principal balance due on this Note in excess of the periodic payments of
principal and interest due on this Note is paid on or after September 1, 2009,
but prior to September 1, 2010 for any reason, the undersigned shall pay a
prepayment penalty equal to two (2) percent of the principal balance prepaid; if
all or any portion of the principal balance due on this Note in excess of the
periodic payments of principal and interest due on this Note is paid on or after
September 1, 2010, but prior to September 1, 2011 for any reason, the
undersigned shall pay a prepayment penalty

                                       2
<PAGE>

equal to two (2) percent of the principal balance prepaid; if all or any portion
of the principal balance due on this Note in excess of the periodic payments of
principal and interest due on this Note is paid on or after September 1, 2011,
but prior to September 1, 2012 for any reason, the undersigned shall pay a
prepayment penalty equal to one (1) percent of the principal balance prepaid; if
all or any portion of the principal balance due on this Note in excess of the
periodic payments of principal and interest due on this Note is paid on or after
March 1, 2012, but prior to September 1, 2013 for any reason, the undersigned
shall pay a prepayment penalty equal to three (3) percent of the principal
balance prepaid; if all or any portion of the principal balance due on this Note
in excess of the periodic payments of principal and interest due on this Note is
paid on or after September 1, 2013, but prior to September 1, 2014 for any
reason, the undersigned shall pay a prepayment penalty equal to three (3)
percent of the principal balance prepaid; if all or any portion of the principal
balance due on this Note in excess of the periodic payments of principal and
interest due on this Note is paid on or after September 1, 2014, but prior to
September 1, 2015 for any reason, the undersigned shall pay a prepayment penalty
equal to two (2) percent of the principal balance prepaid; if all or any portion
of the principal balance due on this Note in excess of the periodic payments of
principal and interest due on this Note is paid on or after September 1, 2015,
but prior to September 1, 2016 for any reason, the undersigned shall pay a
prepayment penalty equal to two (2) percent of the principal balance prepaid; if
all or any portion of the principal balance due on this Note in excess of the
periodic payments of principal and interest due on this Note is paid on or after
September 1, 2016, but prior to September 1, 2017 for any reason, the
undersigned shall pay a prepayment penalty equal to one (1) percent of the
principal balance prepaid. Notwithstanding the foregoing, the undersigned, in
any twelve (12) month period commencing August 1 and ending July 31, is
permitted to prepay, without penalty or premium, an amount equal to, in the
aggregate, twenty (20) percent of the outstanding principal balance of this Note
as of August 1 of each such twelve (12) month period. Such prepayment right
shall not be cumulative. Further, the undersigned, for a period of thirty (30)
consecutive days only after September 1, 2007 and September 1, 2012,
respectively, time being of the essence, shall also be permitted to prepay this
Note in full but not in part without penalty or premium. Notwithstanding the
foregoing, no prepayment penalty shall be imposed in connection with any
condemnation award or insurance proceeds which are used to reduce the
outstanding principal balance of this Note in accordance with the terms and
conditions of the Mortgage, or if Bank demands payment in full of this Note
pursuant to the provisions of Paragraphs 10 or 11 of the Mortgage.

         The undersigned has executed and delivered to the Bank a mortgage of
even date herewith covering lands in the Town of West New York, County of
Hudson, State of New Jersey (the "Mortgage") and an assignment of leases dated
even date herewith (the "Assignment") and agrees as follows:

                                       3
<PAGE>

         1. The unpaid balance of the principal sum of this Note and the
interest thereon shall immediately become due and payable at the election of the
holder hereof, anything herein contained to the contrary notwithstanding, in the
event of:

                  (a) Thirty (30) days' default in the making of any payment due
hereunder or in the payment of any tax, assessment, water rent or other
municipal or governmental rate, charge, imposition or lien upon the premises
described in the Mortgage, or

                  (b) Any failure to perform any of the covenants, conditions
and agreements contained in this Note, the Mortgage, the Assignment or any other
document executed or delivered in connection with the loan evidenced by this
Note (collectively, the "Loan Documents") and the continuance of such default
beyond any applicable grace or notice period.

         2. In the event that any payment shall become overdue for a period in
excess of 10 days, a late charge of five cents (5(cent)) for each dollar so
overdue may be charged by the holder for the purpose of defraying the expense
incident to handling such delinquent payment.

         3. Any amounts advanced by the Bank in accordance with the Loan
Documents or any other amounts due and payable by the undersigned in accordance
with the provisions of the Loan Documents shall be added to the amount owing
hereunder and shall be due and payable, on demand, with interest at the rate
provided for with reference to any such advancement or obligation or if no such
rate is provided then at the rate of interest payable on this Note.

         4. All of the covenants and agreements contained in the Mortgage and
the Assignment are hereby made a part hereof.

         5. All parties who at any time may be liable hereon in any capacity,
jointly or severally, waive presentment, demand for payment, protest, notice of
protest and notice of dishonor of this Note, and authorize the holder hereof,
without notice, to grant extensions in the time of payment of and increases in
the rate of interest payable on any moneys owing on this Note.

         6. If the undersigned defaults in any provision hereof, the undersigned
agrees to pay the reasonable out-of-pocket costs and expenses of the Bank,
including, without limitation, reasonable attorney's fees incurred in the
collection and/or enforcement or the attempted collection and/or enforcement of
the Loan Documents.

         7. The undersigned will be bound by this Note even if all or some of
the property securing this Note is lost, stolen, damaged or destroyed.

         8. This Note will be governed by the law of the State of New Jersey.

                                       4
<PAGE>

         9. Throughout this Note, the masculine gender shall be deemed to
include the feminine gender or neuter, as the case may be, and the singular, the
plural.

         10. In any action brought by the Bank on this Note, the undersigned
waives the right to assert any counterclaim or claim an offset against the Bank
in any action brought on this Note except mandatory counterclaims which would be
barred if not raised in the same proceeding and consents (i) to the jurisdiction
of the Superior Court of the State of New Jersey or the United States District
Court for the District of New Jersey; (ii) in any action in the Superior Court
of New Jersey, to the laying of venue in Bergen or Passaic County, New Jersey;
and (iii) to the service of any summons and complaint or other process by
registered or certified mail directed to the undersigned at 635 59th Street,
West New York, New Jersey 07093.

         11. Any forbearance by the Bank in exercising any right or remedy
hereunder or under any other Loan Document, or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any such right or
remedy; nor shall any single or partial exercise of any such right or remedy, or
any abandonment or discontinuance of steps to enforce such a right or remedy,
preclude any other or further exercise thereof or the exercise of any other
right or remedy.

         THE UNDERSIGNED AND ALL ENDORSERS AND GUARANTORS WAIVE TRIAL BY JURY.

WITNESS:                                    Jaclyn, Inc.


                                            by
--------------------------                     --------------------------------

                                       5
<PAGE>

STATE OF NEW JERSEY      }
                         }  SS.
COUNTY OF PASSAIC        }


         I CERTIFY that on the 14th day of August, 2002, appeared before me,
__________________, to me known, who, being by me duly sworn, did depose and say
that he is the ______________ of Jaclyn, Inc., the corporation described in and
which executed the foregoing instrument; that he knows the seal of the
corporation; that the seal affixed to the instrument is such corporate seal;
that it was so affixed by order of the board of directors of the corporation,
and that he signed his name thereto by like order.


                                        ---------------------------------------
                                                         Notary

                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>5
<FILENAME>ex_4b.txt
<DESCRIPTION>EXHIBIT 4(B)
<TEXT>
                                                                    Exhibit 4(b)
                                                                    ------------

                          MORTGAGE, SECURITY AGREEMENT
                             AND FINANCING STATEMENT

         This mortgage made this 14th day of August, 2002, between Jaclyn, Inc.,
a Delaware corporation, having its principal office located at 635 59th Street,
West New York, New Jersey 07093 ("Mortgagor"); and

         HUDSON UNITED BANK, a New Jersey corporation, having its principal
office located at 1000 MacArthur Boulevard, Mahwah, New Jersey 07430
("Mortgagee");

         WITNESSETH, that to secure the payment of an indebtedness in the sum of
THREE MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100 (3,250,000.00) DOLLARS and
any modifications, extensions or renewals thereof together with interest thereon
to be paid according to a certain note in the original principal amount of
$3,250,000.00 (the "Note") and in consideration of one dollar and other good and
valuable consideration, the receipt of which is hereby acknowledged, Mortgagor
hereby mortgages to Mortgagee:

         ALL that certain tract or parcel of land and premises, situate, lying
and being in the Town of West New York, in the County of Hudson and State of New
Jersey, as more particularly described on Schedule A attached hereto and made a
part hereof (the "premises").

         Mortgagor covenants with Mortgagee as follows:

         Warranty of Title. Mortgagor warrants title to the premises free and
clear of all liens and encumbrances except those matters set forth in title
insurance commitment No. 02-6542851 issued by Fidelity National Title Insurance
Company of New York and not omitted at the closing of the mortgage loan
evidenced by the Note.

         Ownership; Liens. Mortgagor is the owner of the premises and shall pay
all taxes, water rates, municipal liens or assessments levied against the
premises, and that no owner of the premises shall be entitled to any credit or
make any deductions from the interest, principal charges or advances hereby
secured by reason of the payment of any such taxes or liens thereon. If not
paid, the holder hereof shall have the right to pay the same and the amount paid
shall be added to the amount due hereunder with interest at five (5) percentage
points over the interest rate payable on the Note at the time of such
advancement.

         Mortgagor shall make monthly deposits with Mortgagee into a
non-interest bearing deposit account (the "Special Escrow Account") to be used
by Mortgagee to pay the yearly taxes and assessments

                                        1
<PAGE>

levied against the premises and/or the yearly premiums for insurance. Mortgagee
shall establish, in the exercise of its sole discretion, the amount of the
initial deposit, and such initial deposit shall be paid by Mortgagor to
Mortgagee on demand. Thereafter, Mortgagor shall deposit with Mortgagee for
deposit into the "Special Escrow Account", on the due date of and in addition
to, the monthly installment payment of interest and principal, a sum equal to
one-twelfth of the yearly taxes and assessments levied against the premises, and
if so required, one-twelfth of the yearly premiums for insurance. When unknown,
Mortgagee, in the exercise of its sole discretion, shall estimate the amount of
such taxes, assessments and premiums. Any deficiency in such account shall be
paid by Mortgagor to Mortgagee upon demand. If a default occurs under this
Mortgage, the Note or any other Loan Document, Mortgagee may apply any funds in
such account against the outstanding balance of obligations secured hereby.

         Mortgagee may, from time to time, in its sole discretion, waive and
after any such waiver reinstate, after the occurrence of an Event of Default
under Paragraph 14(B) hereunder or upon the occurrence of any other Event of
Default and the during the continuance of any such other Event of Default, any
or all of the terms and/or conditions of the Special Escrow Account by notice to
Mortgagor in writing. While any such waiver is in effect, Mortgagor shall pay
when due all taxes, assessments and insurance premiums with respect to the
premises. At of the date hereof, Mortgagee waives the requirement that Mortgagor
establish a special escrow account pursuant to this Paragraph 2. Mortgagor shall
provide Mortgagee, on demand and annually regardless of whether Mortgagee has
made demand, proof, as Mortgagee in the exercise of its sole discretion shall
deem satisfactory, that Mortgagor has paid when due all taxes, assessments, and
insurance premiums with respect to the premises.

         Promise to Pay. That Mortgagor promises to pay the Note in accordance
with its terms.

         Mortgagor's Obligation to Furnish Statement. That Mortgagor, upon
written request of Mortgagee, will furnish a statement confirming the amount due
on this Mortgage.

         Security Interest. This Mortgage shall include such interest as
Mortgagor as owner shall have in all buildings, fixtures and personal property
now or hereafter used in the physical operation of the premises (but not the
operation of Mortgagor's business) including, without limitation, all motors,
generators, carpets, furnishings, screens, curtains, awnings, window shades, all
lighting, heating, ventilating, air-conditioning, sprinkling, fire prevention or
extinguishing, plumbing, gas, water, power, incinerating, and laundry systems
and fixtures, all engines, machinery, gas and oil tanks, washing machines,
boilers, ranges, furnaces, elevators and meters, mirrors, refrigerators,

                                        2
<PAGE>

refrigeration plants, freezers, garbage disposal units, cabinets, shades,
sashes, mantels, storm and screen windows, doors and appliances, which are now,
or which may hereafter be placed or located in, on or upon the premises,
together with all additions and accessories thereto, substitutions therefor and
replacements thereof, together with all rents and/or monies paid by the tenants
of the premises.

         That this Mortgage shall include as additional security for all
Obligations secured hereby, such interest as Mortgagor shall have in all
subdivision and site plans, all applications to any governmental agencies, all
governmental approvals and any professional contracts, agreements or
understandings now existing or hereafter entered into relating to or involving
the physical operation or development of the premises (but not the operation of
Mortgagor's business) including, without limitation, construction contracts,
architect's agreements, management agreements and agreements for services
heretofore or hereafter rendered to Mortgagor in connection with the use,
development or renovation of the premises and Mortgagor authorizes all
engineers, attorneys or architects to use any of the work therefore done by any
of them for Mortgagor for the benefit of Mortgagee or of anyone acquiring title
at a sale upon the foreclosure of this Mortgage.

         This Mortgage is a security agreement within the meaning of the Uniform
Commercial Code of the State of New Jersey (the "Code") with respect to all
assets which Mortgagee has granted a security interest in favor of Mortgagor
under this Paragraph 5 above as to which the creation and perfection of a
security interest is subject to the Code and is also a mortgage as to those
portions of the collateral described in this Mortgage that are classified as
real property. Mortgagor shall not, without first obtaining the prior written
consent of Mortgagee, pledge, assign or grant any security interest in any real
or personal property described this Mortgage in which Mortgagee is granted a
lien or security interest. If an Event of Default set forth in this Mortgage
shall have occurred and shall be continuing, this Mortgage, the Note, or any
other Loan Document (as hereinafter defined), Mortgagor shall have the option of
proceeding, to the extent permitted under applicable law, as to both real and
personal property in accordance with its rights and remedies with respect to the
real property as an alternative to proceeding in accordance with the provisions
of the Code and Mortgagee may exercise any and all of the other rights as a
secured party under the Code. The address of Mortgagor, as debtor, and the
address of Mortgagee, as secured party, are shown on the first page of this
Mortgage.

         To the extent permitted by applicable law, this Mortgage shall be
deemed to be and may be enforced from time to time as a mortgage, assignment,
security agreement or financing statement and shall constitute a financing
statement filed as a "fixture filing" for the purposes of Article
12A:9-501(a)(B) of the Code. For

                                        3
<PAGE>

purposes of compliance with the aforementioned section of the Code, Mortgagee is
secured party, Mortgagor is the Debtor, and the address of Mortgagee (secured
party) from which information concerning the security interest granted hereby
may be obtained is set forth on the first page of this Mortgage.

         No Removal of Buildings; Erection of Structures. That no building or
any part thereof shall be removed from the premises, nor shall any structural or
material design changes be made to any such building or part thereof without the
prior written consent of Mortgagee which consent shall not be unreasonably
withheld. That no additional building or other structure shall be erected on the
premises without the prior written consent of Mortgagee. Mortgagor shall have
the right to make non-material, non-structural changes without the consent of
the Mortgagee.

         Insurance. That Mortgagor shall obtain and maintain insurance on the
premises and all parts thereof and operations conducted therein in such manner
and against such loss, damage and liability, including liability to third
parties, as a prudent lender would require from time to time. Such insurance
shall include, without limitation, the following:

                  Public liability insurance insuring against any and all
liability or claims of liability arising out of, or occasioned by or resulting
from, any accident or otherwise resulting in or about the premises an amount not
less than $2,000,000.00;

                  Hazard insurance, premises damage and broad form fire and
extended coverage, with additional extended coverage insuring against such other
hazards, casualties and contingencies as Mortgagee may require, which insurance
shall be in an amount not less than the replacement value of all buildings
located thereon and the contents thereof, as determined at regular intervals.

                  If the premises is required to be insured pursuant to the
Flood Disaster Protection Act of 1973 and the Major Flood Insurance Act of 1968
and the regulations promulgated thereunder, flood insurance in an amount not
less than $900,000.00 or the maximum limit of coverage available under the
federally subsidized programs, whichever amount is less.

                  Any insurance required hereunder shall be written by insurance
companies authorized or licensed to do business in the State of New Jersey and
which shall have at all times a Best Rating of at least "A" or other rating
acceptable to Mortgagee. Each such company shall have had such rating for at
least the preceding four (4) years. Each insurance policy shall contain a
provision to the effect that such policy shall not be canceled or changed in any
manner without thirty (30) days' prior written notice to Mortgagee. Each policy
shall be renewed or replaced and evidence thereof presented to Mortgagee at
least twenty (20) days prior to its

                                        4
<PAGE>

expiration. Each insurance policy providing insurance against loss of or damage
to premises shall be written or endorsed so as to make the loss payable directly
to Mortgagee and each policy providing public liability coverage shall be
written or endorsed so as to name Mortgagee as an additional insured. All
policies shall contain proper mortgagee clauses insuring Mortgagee, as mortgagee
and shall be deposited with Mortgagee throughout the term of the Note. Any such
insurance shall also provide that any amounts payable to Mortgagee under the
policy shall not be reduced by prorating with any other insurance.

         Mortgagor's Affirmative Covenants. That Mortgagor will,
unless Mortgagee shall otherwise consent in writing:

                  A. Within one hundred twenty (120) days of the end of its
fiscal year, supply Mortgagee with a balance sheet and profit and loss
statement, which financial statements shall be prepared by Mortgagor in
conformity with generally accepted accounting principles and certified by either
the President or chief financial officer of Mortgagor, audited by independent
certified public accountants approved by Mortgagee which approval will not be
unreasonably withheld, shall fairly present Mortgagor's financial condition at
the close of each fiscal year and the results of its operations during each
fiscal year;

                  B. From time to time furnish Mortgagee, upon its request, such
further information regarding Mortgagor's business affairs and financial
condition as Mortgagee may deem reasonably necessary within ten (10) days of
such request;

                  C. Notify Mortgagee promptly of any action, suit or other
proceeding which, if adversely determined, would result in a judgment in excess
of $100,000.00 or have a material adverse effect on Mortgagor's financial
condition or business;

                  D. Give to Mortgagee prompt notice of any default by Mortgagor
under any material agreement or obligation with others;

                  E. Execute such financing statements and such other documents
as may be reasonably required by Mortgagee, from time to time, to create,
perfect and preserve its security interest in any collateral securing repayment
of the Note and to pay the cost of filing such documents pursuant to law.
Mortgagor appoints Mortgagee its attorney-in-fact to execute any such documents;

                  F. Continuously maintain its corporate existence in good
standing as a Delaware corporation;

                  G. Pay all of its obligations in the ordinary course of its
business;

                  H. Maintain, as of the end of each fiscal year of

                                        5
<PAGE>

Mortgagor, commencing with the fiscal year ending June 30, 2003, a debt service
coverage ratio of not less than 1.25 to 1.0, which debt service coverage ratio
is defined as net income after taxes plus depreciation to the current portion of
long term debt, all as reflected on Mortgagor's financial statements delivered
to Mortgagee pursuant to Subparagraph 8(A) of this Mortgage.

                  I. Immediately notify Mortgagee of any default by Mortgagor or
any tenant or subtenant under any real estate lease for all or any portion of
the premises which would permit either party to terminate the lease or sublease
or permit any such tenant, or subtenant to withhold payments under any such
lease or sublease;

                  J. Deliver to Mortgagee within ten (10) days after the end of
each fiscal year of Mortgagor, commencing with the fiscal year ending June 30,
2003, a certificate signed by an officer of Mortgagor to the effect that such
individual is not aware of any condition, event or act which would constitute an
Event of Default under this Mortgage, the Note or any other Loan Document or
which would constitute an Event of Default under this Mortgage, the Note or any
other Loan Document with a lapse of time or the giving of notice or both, or if
such condition, event or act exists specifying same.

         Mortgagor's Negative Covenants. That Mortgagor will not,
unless Mortgagee shall otherwise consent in writing:

                  Create, suffer or permit to exist any lien or encumbrance
against all or any part of the premises except as permitted by this Mortgage;

                  Sell, lease, transfer or otherwise dispose of any part of the
premises, whether now owned or hereafter acquired, except as otherwise permitted
by this Mortgage; provided, that the transfer of all or any portion of any
equity or other securities of Mortgagor (including any warrants, options or
other securities exchangeable or convertible into any of the foregoing) shall
not constitute the sale, lease, transfer or other disposition of the premises;
or

                  Enter into a sale of assets, consolidation or merger agreement
which would involve a change of ownership of the premises.

         Eminent Domain. If all or any portion of the premises is taken by the
exercise of eminent domain or a conveyance of any part of the premises is given
in lieu of any such condemnation, the proceeds of such taking or conveyance
shall be payable to Mortgagee and the proceeds shall be applied, at Mortgagee's
option, (i) to restore the premises so that the premises shall be, as nearly as
practicable, in the same condition as immediately prior to such taking or
conveyance, subject to such reasonable requirements as to

                                        6
<PAGE>

the disbursement of such proceeds as Mortgagee may deem necessary; or (ii) to
reduce the Note. In the event the proceeds are used to reduce the Note, the Note
shall, at Mortgagee's option, become immediately due and payable. The
disbursement of the proceeds of any such award or taking shall be subject to the
reasonable restrictions of Mortgagee as to its use. The proceeds of any award or
claim for damages, direct or consequential, in connection with any such
condemnation or other taking of the premises or any part thereof or for the
conveyance in lieu of condemnation are assigned and shall be paid to Mortgagee
and shall be applied as provided above to reduce the Note or to the restoration
of the premises. If such a substantial portion of the premises shall be taken,
which is sufficient in the good faith judgment of Mortgagee to render the
remaining portion of the premises uneconomic for restoration, the Note shall
become immediately due and payable and the proceeds of any such award shall be
used to reduce the Note. If the Note is required by Mortgagee to be reduced or
paid in full as a result of such damage or destruction, there shall be no
prepayment fee imposed as a result of such prepayment.

         Destruction of Premises. If a portion of any building located on the
premises shall be damaged or destroyed, Mortgagor shall use the proceeds of any
insurance payable to Mortgagor as a result of any such damage or destruction, at
Mortgagee's option, (i) to restore the building so that the building shall be,
as nearly as practicable, in the same condition as immediately prior to such
damage or destruction; or (ii) to reduce the Note. In the event the proceeds are
used to reduce the Note, the Note shall, at Mortgagee's option, become
immediately due and payable. The disbursement of the insurance proceeds shall be
subject to the reasonable restrictions of Mortgagee as to its use. If such a
substantial portion of any building shall be damaged or destroyed which is
sufficient, in the good faith judgment of Mortgagee, to render the remaining
portion of the building uneconomic for restoration or repair, the Note shall
become immediately due and payable and the proceeds of any such insurance shall
be used to reduce the Note. If the Note is required by Mortgagee to be reduced
or paid in full as a result of such damage or destruction, there shall be no
prepayment fee imposed as a result of such prepayment.

         Hazardous Substances.

                  That to the best of Mortgagor's knowledge, no part of the
premises has ever been used by previous owners and/or operators to refine,
produce, store, handle, transfer, process or transport "Hazardous Substances",
as such term is defined in N.J.S.A. 58:10- 23.11b(k) of the New Jersey Spill
Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.) and Mortgagor has
not in the past nor does Mortgagor intend in the future, to use the premises for
the purpose of refining, producing, storing, handling, transferring, processing
or transporting such "Hazardous

                                        7
<PAGE>

Substances," except for the storage, handling, transfer and transport in the
ordinary course of Mortgagor's business, as currently conducted, and for other
incidental use, in each case in accordance with applicable laws.

                  That to the best of its knowledge, Mortgagor knows of no
evidence of the presence of such "Hazardous Substances" or "Hazardous Wastes",
as such terms are defined in N.J.A.C. 7:1-3.3, on or in the premises, except for
the presence of cleaning and other materials used in the ordinary course of
business.

                  That in the event that there shall be filed a lien against the
premises by the New Jersey Department of Environmental Protection, pursuant to
and in accordance with the provisions of N.J.S.A. 58:10-23.11f(f), as a result
of the chief executive of the New Jersey Spill Compensation Fund having expended
monies from such fund to pay for "Damages", as such term is defined in N.J.S.A.
58:10-23.11g, and/or "Cleanup and Removal Costs", as such term is defined in
N.J.S.A. 58:10-23.22b(d), then Mortgagor shall, within thirty (30) days from the
date that Mortgagor is given notice that the lien has been placed against the
premises or within such shorter period of time in the event that the State of
New Jersey has commenced steps to cause the premises to be sold pursuant to the
lien, either (i) pay the claim and remove the lien from the premises, or (ii)
furnish a bond satisfactory to the title insurance company and Mortgagee in the
amount of the claim out of which the lien arises.

                  That should Mortgagor cause or permit any intentional or
unintentional action or omission resulting in the releasing, spilling, leaking,
pumping, pouring, emitting, emptying or dumping of "Hazardous Substances", as
such term is defined in N.J.S.A 58:10-23.11b(k), into the waters or onto the
lands of the State of New Jersey, or into the waters outside the jurisdiction of
the State of New Jersey resulting in damage to the lands, waters, fish,
shellfish, wildlife, biota, air or other resources owned, managed or held in
trust or otherwise controlled by the State of New Jersey, without having
obtained a permit issued by the appropriate governmental authorities, Mortgagor
shall promptly clean up such spill, leak, pumping, pouring, emitting, emptying
or dumping in accordance with the provisions of the New Jersey Spill
Compensation and Control Act.

                  Mortgagor will not use, or permit the use of, the premises or
any portion of the premises for any purpose which would subject the premises to
the provisions of the New Jersey Industrial Site Recovery Act (N.J.S.A. 13:1K-6
et seq.) as presently written. Mortgagor will impose this restriction on any and
all future leases it grants for all or any part of the premises.

         On-Site Inspection. That Mortgagor shall at the request of Mortgagee
but not more frequently than once in any twelve (12)

                                        8
<PAGE>

month period, cause to be conducted a complete and thorough on-site inspection
of the premises (but not to include invasive testing) to determine if the
premises are being operated free of any release, spilling, leaking, pumping,
pouring, emitting, emptying or dumping of Hazardous Substances and to determine
if there are any Hazardous Substances on the surface of, in the subsurface of,
or located in, the premises. The inspection shall be made by a person or persons
approved by Mortgagee and complete reports of all such inspections shall be
promptly delivered to Mortgagee. If Mortgagor fails to provide for any such
inspection, Mortgagee, in addition to exercising any other remedies, may cause
such inspection to be made and add the expense thereof to the amount due on the
Obligations (as hereinafter defined) secured by this Mortgage.

         Events of Default. That in the case of the happening of any of the
following events (an "Event of Default"), the principal sum of the Note or as
much thereof as may remain unpaid, together with all arrearages of interest,
charges and all advancements and additions thereto inclusive, all money advanced
for taxes, liens and insurance and all other amounts secured by this Mortgage
plus interest thereon (collectively, the "Obligations") at the option of
Mortgagee, shall become and be due and payable immediately thereafter:

                  Any representation or warranty made in connection with the
Note, this Mortgage or in any report, certificate, operating report, financial
statement or other document furnished in connection with the Note, or with the
execution and delivery of the Note by Mortgagor or this Mortgage shall prove to
be false or misleading in any material respect;

                  Failure to make any payment of principal of, or any
installment thereof, or interest on, the Note, when and as the same shall become
due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or by acceleration thereof or otherwise and the continuance
of such default for a period of thirty (30) days;

          Default with respect to any evidence of indebtedness or liability of
Mortgagor for borrowed money in excess of $50,000.00 in the aggregate (other
than the Note), if the effect of such default is to accelerate the maturity of
such evidence of indebtedness or liability or in the case of a default in the
payment of principal or interest on any such indebtedness, to permit the holder
or obligee thereof to cause any indebtedness to become due prior to its stated
maturity, or any such indebtedness shall not be paid as and when due and
payable;

                  Mortgagor shall sell, convey, transfer or assign the premises
or any interest therein, except as otherwise permitted by Paragraph 10;
provided, that the transfer of all or any portion of any equity or other
securities of Mortgagor (including any

                                        9
<PAGE>

warrants, options or other securities exchangeable or convertible into any of
the foregoing) shall not constitute the sale, conveyance, transfer or other
assignment of the premises or any interest therein.

                  Failure by Mortgagor to perform any covenant, condition or
agreement contained in Paragraph 7 of this Mortgage and the continuance of such
failure for a period of five (5) days.

                  Failure by Mortgagor to perform any other covenant, condition
or agreement contained in this Mortgage, the Note or any other document executed
or delivered in connection with this Mortgage (collectively, the "Loan
Documents") and except where a specific grace and/or notice period is provided
with respect to such failure, the continuance of such failure for a period of
thirty (30) days after notice from Mortgagee or such longer period of time if
such failure cannot be cured within such thirty (30) day period, provided
Mortgagor has commenced to cure such failure within such thirty (30) day period
and diligently prosecutes such failure to conclusion, or such shorter period of
time as Mortgagee shall determine, if, in the reasonable opinion of Mortgagee,
the continuance of such failure for a period of thirty (30) days or such longer
period of time, as Mortgagee shall determine but in no event less than five (5)
days, if in the reasonable opinion of Mortgagee would impair the value of any
collateral securing any Obligation or adversely effect the repayment of any
Obligation.

                  Mortgagor shall, without Mortgagee's prior written consent,
create any lien on any portion of the premises, whether or not prior to this
Mortgage, and fail to have any such lien which is imposed on any part of the
premises without Mortgagee's consent, immediately discharged (i) within ten (10)
days after such lien is created or such longer period of time if such lien
cannot be discharged within such ten (10) day period, provided Mortgagor has
commenced to remove such lien within such ten (10) day period and diligently
prosecutes same to conclusion or (ii) such shorter period of time as Mortgagee
shall determine but in no event less than five (5) days if, in the opinion of
Mortgagee, the continuance of such lien for a period of ten (10) days or such
longer period of time, as Mortgagee shall determine, if in the reasonable
opinion of Mortgagee, after notice would impair the value of any collateral
securing any Obligation or adversely affect the repayment of the Obligation;

                  Final judgment for the payment of money in excess of an
aggregate of $100,000.00 shall be rendered against Mortgagor which judgment is
not fully covered by insurance, or the same shall remain undischarged for a
period of thirty (30) consecutive days during which execution is not effectively
stayed;

                  Mortgagor shall (i) apply for or consent to the appointment of
a receiver, trustee or liquidator of it or any of

                                       10
<PAGE>

its premises; (ii) admit in writing its inability to pay its debts as they
mature; (iii) make a general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent or (v) file a voluntary petition in
bankruptcy or under any reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition is filed against it in any proceeding under any such
law or if action shall be taken for the purposes of effectuating any of the
foregoing;

                  An order, judgment or decree is entered by any court of
competent jurisdiction approving a petition seeking the reorganization of
Mortgagor or of all or a substantial part of Mortgagor's assets, or appointing a
receiver, trustee or liquidator of Mortgagor and such order, judgment or decree
shall continue unstayed and in effect for any period of sixty (60) days;

                  Any material adverse change in Mortgagor's financial
condition;

                  Failure by Mortgagor to comply with any order of any
department or office of the State of New Jersey or any county or municipality
wherein the premises are situate of which Mortgagor has actual knowledge (i)
within ten (10) days after such order has been issued by such department or
office or such longer period of time if such default cannot be cured provided
Mortgagor has commenced to cure such default within such ten (10) day period and
diligently prosecutes such default to conclusion or (ii) such shorter period of
time as Mortgagee shall determine but in no event less than five (5) days if, in
the reasonable opinion of Mortgagee, the continuance of such default for a
period of ten (10) days or such longer period of time after notice would impair
the value of any collateral securing any Obligation or adversely affect the
repayment of the Obligation;

                  Mortgagor shall allow any building upon the premises to become
vacant and unoccupied, except in the normal course of Mortgagor's business, or
fail to protect the buildings and the improvements thereon from damages through
freezing or otherwise in winter weather or fail to protect the buildings and the
improvements located thereon from damages from any other cause whatsoever other
than ordinary wear and tear;

                  Mortgagor shall use or permit the use of the premises or
any building thereon or any part thereof for any purpose forbidden
by law; or

                  Mortgagor shall fail to maintain the building on the premises
in good repair or remove or demolish, or attempt to remove or demolish, any
building or part thereof now erected, or which may hereafter be erected on the
premises or permit the same to be removed or demolished.

                                       11
<PAGE>

         Further, in the event and during the continuation of any of the
foregoing Events of Defaults, Mortgagee, in addition to any rights and remedies
available to it at law or in equity, may also take any or all of the following
actions:

                  I. Enter upon and take possession of the premises and rent the
same as a mortgagee in possession in accordance with applicable law, either in
its name or in the name of Mortgagor and receive the rents, issues and profits
of the premises, and apply the same, after the payment of the necessary charges
and expenses, including management commissions, on account of the monies and
obligations hereby secured being accountable only for such rents and profits as
are actually collected by it while in possession.

         Foreclose this Mortgage, and upon the commencement of an action for
that purpose, Mortgagee shall be entitled to the appointment of a receiver of
the rents and profits of the premises without the necessity of proving either
inadequacy of the security or insolvency of Mortgagor, or any person who may be
legally or equitably liable to pay money secured hereby, and Mortgagor and each
such person waives such proof and consents to the appointment of such receiver.

         Take any and all steps necessary or advisable in the opinion of
Mortgagee including, without limitation, the expenditure of monies which will be
secured by this Mortgage and considered an advancement under the Note, to
complete the construction of any building located on the premises, to operate
the premises and to comply with any and all state, federal or local laws
applicable to a sale of the premises or part thereof.

                  In connection with the foregoing rights granted to Mortgagee,
Mortgagor designates Mortgagee its attorney-in-fact, with full power of
substitution, which power shall be deemed to be coupled with an interest and
irrevocable, to perform any act which Mortgagor might do in connection with the
completion of construction on the premises, the operation of any business in the
premises and the subsequent sale of all or any part of the premises.

         IV. Mortgagee may be the purchaser of the whole or any part of the
premises or of any interest therein at any sale of the premises whether pursuant
to foreclosure or power of sale or otherwise hereunder and may apply upon the
purchase price any sum, the payment of which is secured by this Mortgage.
Mortgagee, upon any such purchase, shall acquire good title to the properties or
rights so purchased free of the lien of this Mortgage and free of all equities
and rights of redemption in Mortgagor, to the extent permitted by law.

         V. Mortgagee shall have the right to appear in and defend

                                       12
<PAGE>

any action or proceeding brought with respect to the premises and to bring any
action or proceeding, in the name and on behalf of Mortgagor, which Mortgagee,
in its reasonable discretion, believes should be brought to protect its interest
in the premises. Mortgagee may take such action by attorneys selected by
Mortgagee. Mortgagor shall pay all reasonable out-of-pocket expenses in
connection therewith on demand, including reasonable attorneys' fees, costs and
disbursements.

     Environmental Default. In addition to the provisions of Paragraph 16
hereof, in the event of the failure of Mortgagor to comply with any of the
requirements of N.J.S.A. 13:1K-6 et seq.; N.J.S.A. 58:10-23.11 et seq., 42
U.S.C.ss.8901 et seq., 42 U.S.C.ss.9601 et seq., and/or any related regulations
and/or any other environmental law or regulation applicable to the premises,
Mortgagee shall have the right, at the sole option of Mortgagee, to comply with
such statutory or regulatory requirements, and/or to cure any such default, and
the reasonable out-of-pocket costs and expenses of such compliance and/or cure
shall be added to the indebtedness secured by this Mortgage and shall be due and
payable upon demand with interest computed from the date(s) on which such costs
and expenses were incurred by Mortgagee at two (2) percentage points above
Mortgagee's Prime Rate.

     Deposit Account. As a result of the environmental investigation of the
premises, it has been determined that there are at least three (3) abandoned
underground oil tanks located on the premises and potentially one (1) abandoned
underground gasoline tank located on the premises. In order to induce Mortgagee
to close the mortgage loan evidenced by the Note, Mortgagor has deposited with
Mortgagee the sum of $150,000.00 as security for Mortgagee's obligation to
investigate the existence of such underground tanks and take any and all
remediation action required by the New Jersey Department of Environmental
Protection (the "NJDEP"). If Mortgagor fails to promptly proceed with and to
diligently pursue such investigation and the obtaining of a "no further action"
letter from the NJDEP, Mortgagor shall take any and all action recommended by
Mortgagee's environmental consultant in its reasonable opinion to alleviate any
contamination or adverse environmental condition at the premises resulting from
the existence of such tanks. Such deposit account shall be an interest bearing
account over which Mortgagee shall have the sole right of withdrawal. Mortgagee
shall have a security interest in and a lien upon all funds in such deposit
account. Upon the written request of Mortgagor, Mortgagee will permit Mortgagee
to use the funds in such account to pay for the cost and expenses of
investigating and remediating any such environmental contamination or adverse
environmental condition, provided (i) Mortgagor has submitted to the NJDEP a
clean-up plan with respect to all such underground tanks which plan has been
approved by the NJDEP; and (ii) the entire cost of such investigation and
remediation does not exceed $150,000.00 in the reasonable opinion of Mortgagee's
environmental consultant or if

                                       13
<PAGE>

the costs and expenses do exceed $150,000.00, Mortgagor has deposited such
excess costs in the deposit account or has presented proof satisfactory to
Mortgagee that such excess amount has been paid in full by Mortgagor. The
disbursement of the proceeds of the deposit account shall be subject to such
reasonable restrictions as Mortgagee may require. Upon the occurrence and during
the continuance of an Event of Default and the acceleration by Mortgagee of the
Note, Mortgagee is authorized to use any and all funds contained in such account
to investigate the existence of the underground tanks on the premises and any
contamination resulting therefrom and to remediate any adverse environmental
condition on, under or about the premises. At such time as Mortgagor provides a
"no further action" letter issued by the NJDEP or such other evidence of
compliance by Mortgagor with all environmental laws related to the existence of
such underground tanks at the premises as is reasonably acceptable to
Mortgagee's environmental consultant, the balance of the funds contained in the
deposit account together with all accrued but unused interest shall be released
to Mortgagor.

Mortgagee's Exercise of Right. That wherever pursuant to this Mortgage,
Mortgagee exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive.

     Cumulative Rights and Remedies. All rights and remedies of Mortgagee or
Mortgagor contained herein, in the Note and the other Loan Documents, which
terms are incorporated herein by reference, are intended by the parties hereto
to be cumulative in nature, scope and effect. Any one or more of such rights and
remedies may be exercised by Mortgagee concurrently with or independently of any
or all other rights or remedies.

     Mortgagee's Right to Proceed for Part of Debt. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations secured by this Mortgage as the same become
due, without regard to whether or not the balance of any such Obligation shall
be due, and without prejudice to the right of Mortgagee thereafter to bring an
action of foreclosure, or any other action, for a default or defaults by
Mortgagor existing at the time such earlier action was commenced.

     No Claim for Damages. If Mortgagor shall request Mortgagee's consent or
approval pursuant to any of the provisions of this Mortgage or otherwise, and
Mortgagee shall fail or refuse to give, or shall delay in giving, such consent
or approval, Mortgagor shall in no event make, or be entitled to make, any claim
for damages (nor shall Mortgagor assert, or be entitled to assert, any such
claim by way of defense, set-off or counterclaim) based upon any

                                       14
<PAGE>

claim or assertion by Mortgagor that Mortgagee unreasonably withheld or delayed
its consent or approval, and Mortgagor hereby waives any and all rights that it
may have from whatever source derived, to make or assert any such claim.
Mortgagor's sole remedy for any such failure, refusal or delay shall be an
action for a declaratory judgment, specific performance or injunction, and such
remedies shall be available only in those instances where Mortgagee has
expressly agreed in writing not to unreasonably withhold or delay its consent or
approval or where, as a matter of law, Mortgagee may not unreasonably withhold
or delay the same.

     Mortgagor's Indemnification. Mortgagor shall protect, indemnify and save
harmless Mortgagee from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses), imposed upon or incurred
by or asserted against Mortgagee (excluding Mortgagee's gross negligence or
willful misconduct) and arising from any state of facts or circumstances
existing prior to Mortgagee's acquiring title through foreclosure or a deed in
lieu of foreclosure or due to any action or inaction of Mortgagor or any
occupant of the premises or any tenant by reason of (a) ownership of this
Mortgage, the premises or any interest therein or receipt of any rents or
profits from the premises; (b) any accidents, injury to or death of persons or
loss of or damage to premises occurring in, on or about the premises or any part
thereof or on the adjoining sidewalks, curbs, adjacent premises or streets or
ways; (c) any use, nonuse or condition in, on or about the premises or any part
thereof or on the adjoining sidewalks, curbs, adjacent premises or adjacent
parking areas, streets or ways; (d) any failure on the part of Mortgagor to
perform or comply with any of the terms of this Mortgage or the Lease; (e)
performance of any labor or services or the furnishing of any materials or other
premises in respect of the premises or any part thereof; (f) the presence,
disposal, escape, seepage, leakage, spillage, discharge, emission, release or
threatened release of any Hazardous Substances on, from or affecting the
premises; (g) any personal injury (including wrongful death) or premises damage
(real or personal) arising out of or related to such Hazardous Substances
affecting the premises; (h) any lawsuit brought or threatened, settlement
reached or governmental order relating to such Hazardous Substances; or (i) any
violation of laws, orders, regulations, requirements or demands of governmental
authorities, or any policies or requirements of Mortgagee, which are based upon
or are in any way related to such Hazardous Substances affecting the premises
including, without limitation, attorney and consultant fees, investigation and
laboratory fees, court costs and litigation expenses. Any amounts payable to
Mortgagee by reason of the application of this Paragraph 21 shall be secured by
this Mortgage and shall become immediately due and payable and shall bear
interest at Mortgagee's Prime Rate in effect from time to time, plus two (2)
percentage points. The obligations of Mortgagor under this Paragraph 21 shall
survive any termination,

                                       15
<PAGE>

satisfaction, assignment, judgment of foreclosure or delivery of a deed in lieu
of foreclosure of this Mortgage.

     Forbearance by Mortgagee. Any forbearance by Mortgagee in exercising any
right or remedy hereunder, or otherwise afforded by applicable law, shall not be
a waiver of or preclude the exercise of any such right or remedy. The
procurement of insurance or the payment of taxes or other liens or charges by
Mortgagee shall not be a waiver of Mortgagee's right to accelerate the maturity
of the indebtedness secured hereby.

     Mortgagor's Waivers. Mortgagor hereby waives the right to claim an offset
and the right to assert a counterclaim in any action or proceeding in which
Mortgagor and Mortgagee are parties brought by Mortgagee to enforce its rights
hereunder unless such claim or counterclaim is required to be asserted in that
proceeding in order to preserve such claim or counterclaim.

     Jurisdiction; Appointment of Agent. All actions or proceedings with respect
to the Note and this Mortgage shall be instituted in the courts of the State of
New Jersey, County of Bergen or Passaic or the United States District Court for
the State of New Jersey and by execution and delivery of the Mortgage, Mortgagor
irrevocably and unconditionally submits to the jurisdiction (both subject matter
and personal) of such court, and irrevocably and unconditionally waives (i) any
objection Mortgagor may have or hereafter may have to the laying of venue in
such court, and (ii) any claim that any action or proceeding in such court has
been brought in an inconvenient forum. Mortgagor agrees that so long as
Mortgagor shall be obligated to Mortgagee under the Note or this Mortgage,
Mortgagor shall maintain duly appointed agents satisfactory to Mortgagee for the
service of process in the State of New Jersey and shall keep Mortgagee advised
in writing of the identity and location of such agents. The failure of such
agents to give notice to Mortgagor of any such service shall not impair or
affect the validity of such service or of any judgment rendered in any action or
proceeding based thereon.

     Waiver of Marshaling/Waiver of Redemption. Mortgagor hereby waives all
rights, legal and equitable, it may now or hereafter have to require marshaling
of assets or to require upon foreclosure sales of assets in particular order.
Mortgagor also hereby waives to the extent permitted by law, the benefit of all
appraisement, valuation, stay, extension, reinstatement and redemption was now
or hereafter in force and all rights of marshaling in the event of any sale of
the premises or any part thereof. Further, Mortgagor hereby expressly waives any
and all rights of redemption from sale under any order or decree of foreclosure
of this Mortgage on behalf of Mortgagor, and on behalf of each and every person
acquiring any interest in or title to the premises subsequent to the date of
this Mortgage and on behalf of all such persons to the extent permitted by
applicable law.

                                       16
<PAGE>

     Waiver of Jury Trial. Mortgagor and Mortgagee recognize that in matters
related to the Note and this Mortgage, any such party may be entitled to a trial
in which matters of fact are determined by a jury (as opposed to a trial in
which such matters are determined by a federal or state judge). By execution of
this Mortgage, Mortgagee and Mortgagor will give up their respective rights to a
trial by jury. Mortgagor and Mortgagee each hereby expressly acknowledges that
this waiver is entered into to avoid delays, minimize trial expense, and
streamline the legal proceedings in order to accomplish a quick resolution of
claims arising under or in conjunction with the Note and this Mortgage.

         A. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
MORTGAGOR AND MORTGAGEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT THAT MORTGAGOR OR MORTGAGEE MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION, DIRECTLY OR INDIRECTLY, AT ANY TIME ARISING OUT OF,
UNDER, OR IN CONNECTION WITH THE NOTE, THIS MORTGAGE AND THE OTHER LOAN
DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR HEREBY, BEFORE OR AFTER
MATURITY.

         B. CERTIFICATIONS. MORTGAGOR HEREBY CERTIFIES THAT NEITHER ANY
REPRESENTATIVE NOR AGENT OF MORTGAGEE NOR MORTGAGEE'S COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT MORTGAGEE WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. MORTGAGOR ACKNOWLEDGES THAT
MORTGAGEE HAS BEEN INDUCED TO ENTER INTO THE TRANSACTIONS BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATION HEREIN.

     No Avoidance. That Mortgagor will not exercise any statutory or other right
to void its acquisition of the premises under the Industrial Site Recovery Act
without the prior written consent of Mortgagee.

     Modification.  THIS MORTGAGE IS SUBJECT TO MODIFICATION, AT THE
OPTION OF MORTGAGEE, AS PROVIDED IN N.J.S.A. 46:9-8.1 et seq.

     Notices. All notices given hereunder or in any way affecting this Mortgage
shall be in writing and delivered by Registered or Certified Mail, Return
Receipt Requested, or by personal delivery, and be addressed as follows:

         To Mortgagee at:

         Hudson United Bank
         1000 McArthur Boulevard
         Mahwah, New Jersey 07430
         Attention: Mortgage Department


                                       17
<PAGE>
         To Mortgagor at:

         Jaclyn, Inc.
         635 59th Street
         West New York, New Jersey 07093
         Attention:  Anthony Christon, Chief Financial Officer

         With Copy to:

         Jenkens & Gilchrist Parker Chapin LLP
         The Chrysler Building
         405 Lexington Avenue
         New York, New York 10174
         Attention:  William D. Freedman, Esq.

         Three (3) days following the date of deposit of a notice in a United
States Post Office with postage thereon prepaid shall be considered as the date
of giving or serving of the notice. Either party may change the place at which
notice is to be given to it by a notice served upon the other party in
accordance with this section.

     Inspection; Appraisal. Mortgagee shall have the right to appraise and/or
re-appraise (both prior to and during the term of the Note) any premises,
assets, or rights of Mortgagor in any federally related transaction as defined
under Title XI of the Financial Institutions, Reform, Recovery, and Enforcement
Act of 1989 ("FIRREA") (12 U.S.C. 3310 et seq.). Upon the occurrence of a
default in connection with any of the terms and conditions of the Loan
Documents, which has continued beyond any applicable grace and/or notice period,
Mortgagor shall reimburse Mortgagee for all fees, costs, expenses or charges
incurred by Mortgagee in engaging any such appraiser or reviewing and
documenting such appraisal or reappraisal, and such fees shall be payable on
demand.

         Mortgagor agrees to: (l) provide any information as reasonably
requested by Mortgagee in order to perform the appraisal or reappraisal; and (2)
permit Mortgagee's designated appraiser access to the premises or other assets
at any reasonable time for the purpose of conducting the appraisal or
reappraisal.

     Binding Agreement. The provisions of this Mortgage shall be binding upon
Mortgagor, its successors and/or assigns and shall inure to the benefit of
Mortgagee, its successors and assigns. The terms and conditions of the
Commitment are hereby made a part hereof as if set forth at length herein and
they shall survive the execution of this Mortgage. Throughout this Mortgage, the
masculine gender shall be deemed to include the feminine or neuter gender, as
the case may be, and the singular, the plural.

     IN WITNESS WHEREOF, Mortgagor has hereunto set its hand and seal the day
and year first above written.

                                       18
<PAGE>

MORTGAGOR ACKNOWLEDGES RECEIPT OF A TRUE COPY OF THIS MORTGAGE
WITHOUT CHARGE.

WITNESS:                                    Jaclyn, Inc.



--------------------------                  by --------------------------------
David S. Yanagisawa                            Anthony Christon
                                               CFO and Treasurer

                                       19
<PAGE>

STATE OF NEW JERSEY      }
                         }ss.:
COUNTY OF PASSAIC        }



         I CERTIFY that on the 14th day of August 2002, Anthony Christon
personally appeared before me and acknowledged under oath, to my satisfaction,
that this person:

         (a) is the CFO and Treasurer of Jaclyn, Inc., a Delaware corporation,
the corporation named in this document;

         (b) he personally signed the attached document; and

         (c) he signed, sealed and delivered this document as her voluntary act
and deed and as the voluntary act and deed of the corporation.


                                        --------------------------------------
                                                         Notary

                                       20
<PAGE>

                                   SCHEDULE A

                             DESCRIPTION OF PREMISES

















                                       21

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>ex_21.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>
                                                                      Exhibit 21
                                                                      ----------

                         SUBSIDIARIES OF THE REGISTRANT

                                                          Percentage of Voting
                                    Jurisdiction of        Securities Owned by
Name                                 Incorporation           the Registrant
----                                 -------------           --------------

Bonnie International (Hong

   Kong) Ltd.                        Hong Kong                     100%

Aetna Handbags of Haiti, S.A.        Haiti                         100%

Bonlyn Taiwan Co., Ltd.              Taiwan                        100%

Cosmopolitan of Haiti, S.A.          Taiwan                        100%

JLN, Inc. (1)                        Delaware                      100%

The Bag Factory Inc. (2)             New Jersey                    100%

Investments (JLN) Inc.               Delaware                      100%

Max N. Nitzberg, Inc.                Pennsylvania                  100%

Topsville, Inc.                      Florida                       100%(3)

Josell Global Sourcing Ltd.          Hong Kong                     100%(4)


-----------------------------

(1)   Also does business under the name "Marilyn USA."

(2)   Also does business under the name "Satchels."

(3)   Owned 100% by Max N. Nitzberg, Inc. which is a wholly-owned direct
      subsidiary of the Registrant.

(4)   Owned 100% by Topsville, Inc, which is a wholly-owned indirect subsidiary
      of the Registrant.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>7
<FILENAME>ex_99a.txt
<DESCRIPTION>EXHIBIT 99(A)
<TEXT>
                                                                   Exhibit 99(a)
                                                                   -------------

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                    AS ADOPTED PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report on Form 10-K of Jaclyn, Inc. (the
"Company") for the fiscal year ended June 30, 2002 (the "Report"), the
undersigned each hereby certifies that: (1) the Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and (2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.

                                            /s/ Robert Chestnov
Dated:  September 24, 2002            -----------------------------------------
                                            Robert Chestnov, President
                                            (Chief Executive Officer)

                                           /s/ Anthony Christon
Dated:  September 24, 2002            -----------------------------------------
                                            Anthony Christon, Chief Financial
                                               Officer

</TEXT>
</DOCUMENT>
</SUBMISSION>
